Gamma Scalping: An Overview and Application with Python

Gamma scalping is a sophisticated options trading strategy often employed by professional traders and market makers. It involves dynamically adjusting a portfolio to hedge against price movements in the underlying asset. This technique capitalizes on the gamma of an option, which measures the rate of change of delta in response to price changes in the underlying asset.

In this article, we’ll dive into the concept of gamma scalping, its importance in options trading, and provide a Python example to help you implement this strategy.

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What is Gamma in Options?

Before diving into gamma scalping, it’s essential to understand what gamma is. Gamma is the second derivative of an option’s price with respect to the underlying asset’s price. It measures how much the delta (the first derivative) changes when the underlying asset price changes.

Delta: The sensitivity of the option’s price to changes in the underlying asset’s price.

Gamma: The sensitivity of delta to changes in the underlying asset’s price.