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!
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insights INSIGHT
Gamma's Role
Gamma measures delta's rate of change, revealing how much delta shifts per $1 underlying move.
This second derivative adds nuance to options trading, impacting sensitivity to price changes.
insights INSIGHT
Delta and Gamma Analogy
Delta acts like a speedometer, indicating an option's price movement speed.
Gamma acts like acceleration, showing how quickly delta changes, similar to a car's acceleration.
insights INSIGHT
Implied Volatility's Impact
Implied volatility influences option pricing, making delta less price-sensitive as volatility rises.
Mat Cashman, Principal of Investor Education at the Options Clearing House, joins IBKR’s Jeff Praissman to discuss the often-misunderstood inverse relationship Gamma and Implied Volatility have.
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This material is from The Options Industry Council (OIC) and is being posted with its permission. The views expressed in this material are solely those of the author and/or The Options Industry Council (OIC) and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD) or visit ibkr.com/occ
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