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Gamma Scalping

Volatility levels play a huge part in gamma scalping when using straddles. With this strategy we are trying to choose an underlying that is going to move around significantly enough so that we can ‘gamma scalp’ it – however at the same time we are trying to enter the trade when the underlying volatility levels are at a relatively low point compare to where it’s been trading.

Needless to say this isn’t exactly easy to do since the stocks we will be looking at at usually big movers – and because of that their volatility levels are high.

Gamma Scalping – Entry Points

Ideally what we are looking for is a dip in the volatility levels from the ‘norm’ – and charting the implied volatility levels against the historical levels can be of great help in finding an appropriate entry point.

Gamma Scalping – Earnings

Another trick we’ve learned is to look at entering into a gamma scalping initial straddle position right after earnings on an actively moving stock – as many times (not always however) volatility levels will drop significantly immediately after an earnings announcement – and then begin to rise back up.

There is nothing better than to pick an entry point of a gamma scalping straddle position correctly – as when you do many times you can see a profit come into your position just from the rising vols – and we’ve had positions practically reach our profit target levels very quickly after entering a position – just the the rising volatility levels alone. Absolutely no real movement in the underlying was needed – the profit came just from choosing the correct entry point from a volatility standpoint.

And then, when the movement of the underlying DOES kick in – profits can become extreme as we now have both factors working for us.

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