Option gamma (FRM T4-15)

[@alexwang8257]

This is a super underrated channel. Love your explanation :)

[@jackendobar5303]

hey - videos on these topics are extremely illiquid, thanks for providing them and with such a high quality content. Thanks a lot

[@thomassaunders485]

These videos are excellent. Thank you for your clear explanations and examples.

[@pedroalonsocazorlasaravia5159]

David, I have always read that Gamma is at its highest when the option is ATM. However, in your graphs and on my own calculations, the gamma is highest when OTM.

[@bionicturtle]

Gamma's peak is only near K/S = 1.0. If you look into the formula, [N'(d1)*exp(-qT)]/[S*sigma*sqrt(T)], you'll find why it's exact peak tends to be at K/S < 1.0 and then my graphs use a 1-year term and the difference (from ATM) accentuates with a longer term.

[@juliandiaz9367]

Wouldn’t it be better for the writer of the options to only start hedging IF the price of the stock bridges the strike price? Because (assuming European style options) as long as the options ends up OTM then the options will expire worthless and all that unnecessary hedging won’t eat away the premium.

[@heidim9194]

Thanks

[@bondvillainx5740]

In other words, the Delta is the percentage chance your option will close the day in the profit zone. A .726 Delta means your option has a 72% chance of making a profit if you close it out.