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How to build up the negative gamma position?

"Built up extremely large negative gamma positions by selling large number of out-the-money gold options. "

How to understand this?
 

Bastian Gross

German Mathquant
Hello Ray,

Short calls and short puts both always have negative gamma, wich is meaningful. Negative gamma means that the delta of long calls will become more negative and move upward when the stock prices rises. It means that the delta of short puts will become more negative.Just as delta changes, so does gamma. If you were to look at a graph of gamma versus the strike prices of the options, it would look like a hill.
Nevertheless if an option is out-of-money, its strike price will be either higher than the current market value, in the case of a call, or lower, in the case of a put.

So if you for instance have an short call position in an out-of-money-option, your gamma will be negative and it will yield a profit. The profit is the optionprice, you've got.


So it should hopefully be made clear.
 
"Built up extremely large negative gamma positions by selling large number of out-the-money gold options. "

How to understand this?

You can either sell a large number of OTM options or sell a smaller number of ATM options to have extremely large gamma. But since the curve for gamma is very steep around the strike, it will be safer to invest in the tail of the curve. It will be easy to maintain your gamma position over a longer investment horizontal.

I think you need to elaborate your question in more details. Where does this sentence come from? Under what context?
 
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