A gamma-neutral portfolio hedges against second-order time price sensitivity.
Gamma is one of the "options Greeks" along with delta, rho, theta, and vega.
The option's gamma is a measure of the rate of change of its delta.
The gamma of an option is expressed as a percentage and reflects the change in the delta in response to a one point movement of the underlying stock price.
Enter the argument(s) for the function, including the symbol x.
Enter the minimum and maximum for the X-axis and for the Y-axis.
A gamma neutral portfolio is still subject to risk, however.
For example, if the assumptions used to establish the portfolio turns out to be incorrect, a position that is supposed to be neutral may turn out to be risky.
It generally is at its peak value when the stock price is near the strike price of the option and decreases as the option goes deeper into or out of the money.As the time to expiration draws nearer, the gamma of at-the-money options increases while the gamma of in-the-money and out-of-the-money options decreases.The chart above depicts the behaviour of the gamma of options at various strikes expiring in 3 months, 6 months and 9 months when the stock is currently trading at .Thus, the increase in the time value of these options as they go nearer the money will be less dramatic and hence the low and stable gamma. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable.For instance, a sell off can occur even though the earnings report is good if investors had expected great results....[Read on...] If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount....[Read on...] Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time.....[Read on...] If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPSÂ® and why I consider them to be a great option for investing in the next MicrosoftÂ®....