Gamma Scalping Interview Basics
Gamma scalping interview basics for long gamma, rebalancing, realized volatility, theta tradeoffs, examples, and options market-making caveats.
Candidates seeing dynamic hedging and convexity prompts.
Gamma scalping uses convexity and rebalancing
Gamma scalping is often described as dynamically hedging a long-gamma position. The trader adjusts delta as the underlying moves, trying to benefit from realized movement.
Theta is the cost side
Long gamma often comes with negative theta. The realized movement and hedge execution need to be valuable enough to compensate for time decay and costs.
Concrete example
A long-gamma position may lead a trader to sell underlying after price rises and buy after price falls while rebalancing delta. Costs and move size determine the outcome.
Realized volatility matters
The strategy is more attractive when realized volatility is high relative to what was paid, but that comparison depends on hedging frequency and transaction costs.
Common mistakes
Candidates often say gamma scalping guarantees profit from movement. A stronger answer explains the theta, cost, jump, and execution tradeoffs.
Practice the pattern
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