Submitted by hardyrekshin t3_z7kk8z in wallstreetbets
prophylaxis6 t1_iy8sey5 wrote
Reply to comment by hardyrekshin in 2022-11-29 Wrinkle-brain Plays (Mathematically derived options plays) by hardyrekshin
Wow, this is all a lot to wrap my smooth brain around. I'm highly regarded.
I think I'm getting the basics, but I have many questions still. Maybe I can start with this:
Gamma Max... If the underlying price of the stock goes above the gamma max the MMs hate it because they have to hedge more than they would like to because there is an increased possibility of the price fluctuating outside of their guaranteed returns, so when that happens they have to sell additional shares? This provides you or me with an opportunity to purchase options more likely to swing in our favor, or is it not that simple?
Apologies for the rudimentary questions. Again, I'm highly regarded
hardyrekshin OP t1_iy9n7aw wrote
It's not that simple.
At its core, the premise is that the price touches some important level, and then reacts off of that level.
If there's a consistent pattern, then there's an edge which can be traded.
The part about market makers' sensitivity to gamma is more an attempt to explain why the phenomenon exists. Not a confirmation of the phenomenon.
prophylaxis6 t1_iyal4tb wrote
Do you have any readings or videos you could refer to me to learn more?
hardyrekshin OP t1_iyapxc5 wrote
Options Futures and Other Derivatives by John C Hull (7th ed or later)
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