Short gamma
Definition · Level 4 · Naked options
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Position whose delta moves against the stock — shorter as it rises, longer as it falls — so large moves either way hurt, losses accelerate and hedging means buying high, selling low. Typical of option sellers, paid by positive theta; strongest near short strikes close to expiry.
Example
“We’re short gamma into the print — cut size.”
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Short gamma, gaps and tail risk”: Why losses accelerate, why stops fail on gaps, the steamroller, and margin calls.
Related terms
- Fat tailsExtreme moves occurring far more often than a normal distribution predicts (excess kurtosis), so so-called 5-sigma days come much more often than a…
- Forced liquidationThe broker closing your positions itself — typically at market prices and without waiting for your deposit — to bring the account back within…
- Gap riskDanger that a price jumps between trades — overnight, over a weekend or on news — skipping your stop and your chance to adjust.
- Negative balanceAccount equity below zero after losses exceed everything in the account; the customer owes the broker the deficit.
- Negative skewA P&L profile of many small gains and a few very large losses; typical of option selling.
- Picking up nickels in front of a steamrollerDesk image for strategies that collect small, steady gains while exposed to a rare, crushing loss — the classic critique of naked option selling.