Derivatives (options)

Question 1

The largest gamma occurs when options are trading at the money or near expiration, when the deltas of such options move quickly toward 1.0 or 0.0. Under these conditions, the gammas tend to be largest and delta hedges are hardest to maintain.

Question 2

Net long volatility/net short volatility

Answer 2

During stable economic conditions, traders are often net short volatility, as most of the options expire out-of-the-money (OTM) and the option writer can keep the premium as a payment for accepting volatility risk.
To avoid uncertainty during unstable economic conditions, traders often hedge their positions using net long volatility options.