Making gamma neutral positions on 0DTE options?

@nithin @ShubhS9

How HFT’s & Market makers neutralise their gamma on expiry day to hedge their delta by adding or shorting shares in index futures??

Is there any way to completely neutralise delta & gamma and get positive theta ??

Let me ask the expert @Sensibull (Abid) to respond :slight_smile:

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Hi @Shaanthacker @nithin

Sorry about the delay. I have not done much HFT in my life, so I was asking my HFT friends about this. Here is the rundown of what I learned

  1. HFTs do not really carry a big gamma risk. They do not make money by being short gamma and earning theta. They make money purely by buy low sell high :slight_smile: within seconds. There is some gamma at any instant, but it is not like they carry huge short gamma positions with +ve Theta. This is because they are constantly churning
  2. At any point they are also short and long at the same time. In the sense they might be long 40000CE, at the same instant they are also short 41000 CE
  3. For Delta hedging they use options, and NOT Futures. Two reasons - Cost, and liquidity

To answer your last question:
In practise, it is difficult to not have gamma and get positive Theta. Even if you try to do this, you will still be carrying a Vega Risk. This is a purely theoretical thing, not sure how useful it is or what the realworld applications are

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Non directional fixed loss strategies like iron condor and iron fly are delta/gamma neutral with positive theta (only if the price is in the profitable range)

Can you elaborate what exactly are you looking for?

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Thanks Abid sir for sharing how HFT’s works…

Can you ask your HFT friends to elaborate more on how they buy low & sell high in seconds even when they are constantly short & long too ??