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Gamma hedging strategy
A gamma hedging strategy can be used to reduce your exposure to risk in an options contract. You would use it if the underlying market makes strong up or down moves contrary to your currenct options position, as the expiry date of the contract approaches.
Gamma hedging is a strategy used by options traders to manage the risk associated with the curvature of the options price relative to the underlying asset. Gamma measures the rate of change of an option's delta, which is the sensitivity of the option's price to changes in the underlying asset's price. A high gamma indicates that delta can change rapidly, leading to potential volatility. By using gamma hedging, traders adjust their positions to stabilize delta, ensuring it remains neutral to fluctuations in the underlying asset. This often involves buying or selling options or the underlying asset itself. Gamma hedging is particularly useful for managing large portfolios and mitigating risks from significant price movements, making it a vital tool for sophisticated trading strategies.
Aug 30, 2021 15:19