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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: At_The_Ask who wrote (30638)2/17/2002 8:39:37 PM
From: jjs_ynot   of 99280
 
ATA,

>>> As the option sellers position runs against him the delta requirement becomes larger. As a put comes further in the money the seller would be required to short more of the underlying commodity. <<<

That is true only if you set up a gamma-negative position, i.e. your delta-position changes negatively as price moves. Option market makers and specialists create positions that are gamma positive (second derivative with respect to price is positive) to hedge against delta changes with price movement.

From #reply-17073524:
The goal of an option market maker is to keep his "book" delta-neutral and gamma-positive.

Time decay can affect delta-neutral positions but these can be rehedged slowly and the market maker is readjusting his/her book on a daily basis as he/she takes the side (mostly selling) against the retail trade.

Regards,

Dave
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