IBKR Podcasts cover image

IBKR Podcasts

Opposites Attract: the Inverse Relationship Between Implied Volatility and Gamma

Jan 9, 2025
Mat Cashman, Principal of Investor Education at the Options Clearing House and an expert in options trading, shares fascinating insights into the inverse relationship between implied volatility and gamma. He explains how fluctuations in implied volatility can significantly impact options pricing, especially during times of market distress. Using relatable metaphors, Mat demystifies complex concepts like delta and highlights the importance of understanding these dynamics for effective risk management. Expect eye-opening revelations that could reshape your trading strategies!
17:54

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

  • The inverse relationship between implied volatility and gamma illustrates how market conditions can alter options sensitivity, affecting traders' strategies.
  • Understanding delta and gamma is crucial as they dictate how options respond to underlying price changes and volatility dynamics.

Deep dives

Understanding Delta and Gamma in Options Trading

Delta and gamma are crucial concepts in options trading that measure price sensitivity and change. Delta indicates how much the price of an option is expected to move relative to a $1 change in the underlying asset, with a delta of 50 suggesting a 50-cent move for every dollar. Gamma measures the rate at which delta itself changes as the underlying moves, acting as a second derivative as it represents how responsive an option's delta is to price fluctuations. Understanding these principles sets the foundation for analyzing how they interact with implied volatility, especially during market conditions that may initially seem counterintuitive.

Get the Snipd
podcast app

Unlock the knowledge in podcasts with the podcast player of the future.
App store bannerPlay store banner

AI-powered
podcast player

Listen to all your favourite podcasts with AI-powered features

Discover
highlights

Listen to the best highlights from the podcasts you love and dive into the full episode

Save any
moment

Hear something you like? Tap your headphones to save it with AI-generated key takeaways

Share
& Export

Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more

AI-powered
podcast player

Listen to all your favourite podcasts with AI-powered features

Discover
highlights

Listen to the best highlights from the podcasts you love and dive into the full episode