Gamma Scalping

Gamma scalping is the most sophisticated dynamic hedging strategy used by professional options traders to profit from volatility while maintaining delta neutrality through continuous position adjustments based on the underlying asset's price movements. This advanced technique involves selling options to collect premium while continuously buying and selling the underlying asset to maintain a delta-neutral position, effectively harvesting gamma profits from price oscillations while managing directional risk. The strategy is particularly effective in high-volatility environments where frequent price movements create numerous opportunities for profitable hedging adjustments that exceed the cost of maintaining the hedge. Professional market makers and volatility traders use gamma scalping as their primary profit generation method, requiring sophisticated risk management systems and real-time position monitoring to optimize hedging frequency and transaction costs. The strategy demands deep understanding of options Greeks, particularly gamma and theta relationships, to balance profit extraction with risk management effectively. Gamma scalping requires significant capital, advanced technology infrastructure, and expertise in execution timing to achieve consistent profitability while managing the inherent risks of short volatility exposure

If NIFTY is at ₹25,800, set up: Sell ₹25,800 straddle for ₹230 premium, then continuously hedge by buying NIFTY when it falls and selling when it rises, aiming to profit ₹230 from hedging activities while the options expire worthless.