Q1. Why is Gamma for near-term options more relative to far-term options?
Q2. How or why in a delta-neutral portfolio, having positive gamma beneficial? Is it unaffected by price movement in either (up or down) direction? If yes, how?
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Hi Yash,
1) Gamma for near term options are higher bc delta of near term options are higher and the reason for this is that, as you approach maturity the impact on your portfolio due to change in price of stocks increases and the rate of change of delta is determined by Gamma so, if you think inversely you can understand that maturity ke just pehle delta active ho jaega ache sae aur uska speed gamma btata h toh that will also be high.
2) Delta neutral is always a one minute satisfaction bc as share price moves a delta neutral portfolio becomes non-neutral.
Also, as share price moves your portfolio will be affected unless you actively keep making your portfolio delta neutral from time to time.
I hope the above explanation helps you!