Gamma scalping
Definition · Level 5 · Greeks & volatility
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Re-hedging a long-option position — selling stock as it rises, buying as it falls — to stay flat while harvesting realized moves to pay the time decay.
Example
Long 20 calls, stock +$1.50 → sell 120 shares; buy them back $1.50 lower for +$180.
Where Tradecraft teaches it
Level 5 · Greeks & volatility, in the lesson “Delta hedging, gamma scalping & realized vs implied”: How market makers hedge, why long gamma buys low and sells high, and what a hedged option really bets on.
Related terms
- Delta bandA re-hedging rule: trade the underlying only when net delta drifts outside a set range, balancing transaction costs against hedging error.
- Delta-neutralZero net directional exposure, so small moves in the underlying barely affect P&L — until gamma pushes the position off flat.
- 25-delta optionThe OTM call or put whose delta is ±0.25 — the standard reference strike for quoting skew; very roughly a 1-in-4 chance of finishing in the money.
- Black–ScholesEuropean option-pricing model using spot, strike, time, rates, dividends and volatility; assumes lognormal prices, constant vol, no jumps and…
- Breakeven moveThe daily underlying move at which a delta-hedged option’s gamma P&L just covers its time decay: √(2 × |daily theta $| ÷ position gamma).
- Butterfly (vol quote)Smile-curvature quote: average of the 25Δ call and 25Δ put IVs minus ATM IV — how rich the wings are relative to the money.