One of the most popular posts I’ve written is “The Bucking Gamma Bull,” in which I said:
Think of your deltas as a mechanical bull, and your gammas as the rate and intensity at which the bull throws you around. The ride starts off quietly, but as time goes on the bull gets increasingly difficult to ride, and eventually you’re likely to be thrown. That’s exactly what happens during an expiration week in which the underlying makes an unexpected move: option…
A reader asked us recently about our preference for closing out option spreads prior to expiration. To review, we usually close out any positions that are short gamma at least a few days – and often up to a week – before they expire, since the exponential increase in gamma near expiration makes those positions more difficult to manage. The question was about the how the performance of our strategy would have been affected had we held all positions to…
Very strange and worrying sign today: the credit markets are finally starting to calm down, but we aren’t seeing the expected correlative pop in equities. MS is down 41% at the moment, and GS is down 22%, and we just made a new low for the week on very strong volume. The Fed is looking spent, S&P is talking about the US government’s AAA rating being threatened, nobody seems to want to pony up any more cash, etc. etc.
This may…
We feel like we’re saying this every month, but it sure feels nice not to have any skin in the game come expiration day. Options expiration surely had something to do with the intensity of today’s selloff, and this was a textbook case of why we never hold positions into expiration.
The fancy-pants phrase for the influence options expiration had today is “negative gamma.” The practical significance of that phrase is that when we gapped down at the open, lots of…
Nice comeback in the markets today – the SPX again held the area around 1326, which has been such an important level so far this year. Futures are up tonight, presumably on the good earnings from Intel (INTC), so we’ll likely see a higher open and some strength in the morning. If SPX moves up from here we will have seen consistently higher lows since early March.
This may be yet another quiet options expiration week. Adam notes that the high option…
Wednesday, November 25, 2009
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