Short options negative gamma adjustments

#1
Dear All,

If I have a short option position which is in danger of going ITM how do I counter the negative gamma which will keep increasing by adjusting with further otm buys and otm shorts to become neutral?

I understand that being neutral will be a fix temporarily but if the underlying keeps on moving (like a 600 pt adverse move in a week last year) my negative gamma exposure will kill me.I may have to end up shorting 10 options or so which I cant (no margin/capital for that)...

Any suggestions how to tackle this without buying ITM options or buying back shorted options...I hate to buy -ve theta...
 
#3
Yes of course futures(stocks) have no gamma...

But for a 600 pt move 1 lot against 1 option wont do...the ITM short option will require rapid delta adjustment...and the short gamma of the combined spread will not be lowered by the future...it will just not increase.

With Index futures( Nifty) I will have to adjust in lots..unlike stocks where I can be exactly balanced...

I may end up being over hedged with futures in multiple lots...bad if things revert to mean...

No other possibility?Plain confused:confused:
 

rajsingh

Active Member
#4
You are to neutralize the short option delta, get rid of unwanted otm long options once u use futures . You'll be surprised how close to neutral u can get.

If u can afford to, use nifty bees to fine tune.:)
 
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#5
Thanks 4 the reply..

Do you adjust with futures when cash reaches the short or before that?

And can this adjustment save the premium received at least partially...

Adjusting with a synthetic position will atleast increase potential profit by increase in theta/vega..no such benefit with this adjustment ..but of course it will not cause further damage if cash keeps moving against the short..any guidelines when 1 should use real futures instead of synthetic futures??

Thanks in advance
 

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