Gamma scalping is a quantitative trading strategy focused on profiting from the changes in an option’s delta, known as gamma. The strategy involves maintaining a delta-neutral position by continuously buying low and selling high as the underlying asset price fluctuates. This approach aims to capture profits from short-term volatility while mitigating directional risk.
Adjustment
The core mechanic of gamma scalping requires frequent adjustments to the underlying asset position to keep the overall portfolio delta-neutral. When the underlying asset price moves, the option’s delta changes, necessitating a rebalancing trade. The frequency and precision of these adjustments are critical to the strategy’s success, particularly in high-volatility environments.
Volatility
Gamma scalping strategies thrive on high realized volatility, which provides ample opportunities for rebalancing trades. The strategy generates revenue from the difference between the realized volatility and the implied volatility priced into the options. When realized volatility exceeds implied volatility, the strategy generates positive returns, making it a key tool for market makers in crypto options markets.
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