Gamma scalping - GetProfitable

Own options and you own gamma, which means your delta improves automatically as price moves: you get longer as it rises and shorter as it falls. Re-hedging back to flat forces you to sell into strength and buy into weakness, banking a small profit each time.

Those scalps have to out-earn the theta you pay to hold the options. The break-even is exactly the implied volatility you paid — if the stock actually moves more than that, scalping wins; if it chops less, decay wins. This is the trade behind almost every long-volatility desk.

Example: long ten XYZ $50 straddles, hedged flat at $50. XYZ rises to $51, the position is long 300 share-equivalents, so sell 300 shares. It falls back to $50, the position is flat again, buy the 300 back at $50 for a $300 scalp. Do that enough times to cover the daily theta and the trade works.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.

Time decay of an option's value. The part of an option's price that is only time — its extrinsic value — drains away every day and must reach zero at expiry. The slide is gentle months out and steepest in the final weeks, which is what traders call theta.