OPTION GAMMA RISK EXPLAINED: Why Trading Options Near Expiration …



Whether you are buying options or selling options, you MUST be aware of Gamma Risk and what it means for your option …

22 thoughts on “OPTION GAMMA RISK EXPLAINED: Why Trading Options Near Expiration …”

  1. only dangerous when you sell them. I will often go out about 7 to 12 days and buy far out of the money options that are very inexpensive. And yes, there is a very low probability of being in or close to the money, but when they hit you get the benefit of optionality or sometimes referred to as convexity. I have about an 8%-win rate using this strategy, but it's been quite lucrative. Because of what you described regarding gamma the 8% win rate exceeds the 92% lose rate. OTM options with little time remaining do not have a limier profit profile, it's convex.

  2. Glad I discovered your channel because your presentation is on point. I really appreciate that you deliver JUST the necessary information, and, not jump from idea to idea. Great job.

  3. Great explanation, helps you understand visually. One thing I dont understand is there an intuitive explanation for why gamma is highest atm other than the fact that delta changes fastest from atm to itm or otm?

  4. This is a great explanation of Gamma – helped me understand it a lot better. Thanks, Scott!

  5. I suppose your last sentence, "when buying options, go beyond 60 days expiry", applies only to call options!? Avoiding near-term expiration is mainly to eliminate the gamma risk. But put options are usually bought for protection and gamma can give a put an extra boost in the event of a market crash. Especially when the volatility is rising short term puts should not be a bad solution as a hedge.

  6. Your clear explanation is so refreshing — It made me realize that this is something I already understood intuitively! I’m about 4 months into my options journey, and I love that feeling when a concept “clicks!” ? Great video!

  7. Great explanation and examples . Very easy to understand. So essentially if your far out of the money at expiration date you don’t have to worry to much .

  8. I have a question. So E.g I sold call and collected that 131 like in the video is spy goes up by much wouldn’t my collateral stocks be exercised and we don’t have to worry about how much it can shoot up?

  9. I've definitely experienced this problem. Is there a certain delta/gamma ratio that I am looking out for? If delta can be looked at as close to the probability of ITM, what is a good, practical way of looking at gamma? If you think of this as a tachometer on a car, generally I want to stay in the 2-3K RPM range. I get to 5K, I'm redlining it. By 8K, I'm shopping for a new car. So how does gamma equate along those lines? I realize that once I get to a higher "speed" (aka ITM), my need for RPM goes down considerably due to higher gear. So I get the part of gamma not being a huge issue when a contract is ITM. I guess you can think of it as being near the end zone in football, too. Those yards become more and more critical as yardage (aka time) decreases). I hope this makes sense. I'm confused by what people mean by "high" and "low" gamma. To me, high delta is when I've reached 50.

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