Definition
Gamma Scalping
Gamma scalping is repeatedly re-hedging a long-gamma option position to profit from price swings while staying delta-neutral.
A trader who is long options has positive gamma, so the position's delta grows as price rises and shrinks as it falls. By selling the underlying into rallies and buying into dips to keep delta neutral, the trader locks in small profits from each swing — scalping the gamma — to offset the theta they pay for holding the options.
On the NSE, gamma scalping is a professional volatility strategy on Nifty and Bank Nifty: it makes money when realised volatility exceeds the implied volatility paid for the options. It demands tight execution and low costs, since the edge comes from many small re-hedges.
Related terms
- GammaGamma measures how fast an option's delta changes as the underlying moves — the rate of change of delta.
- Implied vs Historical VolatilityImplied volatility is the market's forecast of future swings from option prices; historical volatility is the actual past movement.
- Delta-Neutral StrategyA delta-neutral strategy balances long and short deltas so the position has little directional exposure, profiting from time or volatility instead.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.