We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Gamma Scalping?

By Danielle DeLee
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Gamma scalping is a strategy implemented by options traders. Traders use the spot market, the market that offers immediate delivery, to hedge their positions in options. Gamma scalping allows traders to take advantage of market movement, whether up or down, at the time that it happens. They re-center their positions, in effect, so they can profit from future movements — even if those movements cancel out the profits the traders had already locked in.

There are two classes of options: puts and calls. A put gives its holder the ability to sell the stock at a certain price, called the strike price. A call gives the holder the ability to buy the stock at the strike price. Buying both a put and a call for the same underlying stock and with the same strike price is called purchasing a straddle. Gamma scalping is used by investors who have purchased a straddle to take advantage of temporary swings in the market.

Options have various measures that describe the effects of market factors on their value. One of these is the delta, which measures the rate of change of the value of the option with respect to the rate of change of the value of the underlying asset. The gamma of an option is a measure of the rate of change of the delta. Standard options have positive gammas.

Holders of straddles profit from market changes in either direction. The profit, however, is contingent on the change in the market persisting until the expiration date of the options, when profit can be realized. If the market goes up and then comes back down, then the profit evaporates as the value of the trader’s position goes back down. Gamma scalping allows the trader to realize some of the profit from market movements before the market can move in the opposite direction.

In gamma scalping, a trader purchases straddles at some initial price. The delta of the call is positive, while the delta of the put is negative. Their sum is zero. If the market moves in some direction, the deltas change. Then, their sum is no longer zero.

When the deltas are no longer balanced, the trader implements the strategy. If the price of the underlying asset went down, then the new delta sum is negative. The investor buys the underlying asset, which has a delta of one, in the spot market to rebalance the delta. If the price of the underlying asset went up, then the investor sells the underlying asset. Bringing the delta back into balance allows the investor to go back to a neutral position, from which he can profit regardless of the direction of subsequent market movements.

The risk that straddle holders face is that the market will remain stable. When this happens, they lose money by remaining passive. This process is called bleeding. The options decrease in value according to two measures: theta, which describes the decrease in the value of an option as a result of the decrease in time until the expiration date, and vega, a measure of the decrease in the value of an option with respect to decreasing volatility of the underlying asset. As long as the market moves in some direction, gamma scalpers can profit.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.