Gamma Irons Flashcards
How do you set up a Gamma Iron?
buying OTM Long Put and Call verticals, one of each
What do you want the markets to do when you place a Gamma Iron?
You want a lot of fast, movement out of the money, bi-directional
What defines your P/L?
what you pay for the 2 verticals (i.e. the total debit paid)
What products do you place Gamma Irons in?
Index or Equity Products
i.e. SPX, SPY, IWM, RUT, QQQ, GLD, TLT, EEM, XLE
When building Gamma Irons, once you’ve chosen an Index or equity product, what is the next thing you’re looking for (step 2 of checklist)
High Open Interest and High Volume (High = 100s to 1000s) at near-term expiration options
tight BID/ASK spreads (< 1.00)
When building Gamma Irons, what Implied Volatility Rank (or “Current IV Percentile”) are you looking for?
10% - 29%
When building Gamma Irons, what is the window of days until expiration you want?
27 - 48 days
When building Gamma Irons, explain the method of selecting your 4 strikes
- Buy a 0.23 to 0.28 Delta Call
- Sell a Call that is +5 farther OTM than the first Call
- Buy a Put strike that is equidistant from the current underlying price as the first Call is
- Sell a Put option $5 farther OTM than the first Put
What is your probability of expiration?
35% - 50%
Why is the Probability of Expiration a misleading value?
because we will not be holding this Gamma Iron all the way to expiration
How do you calculate your “actual” probability of profit on this position?
(Debit paid) / (Width of the spread)
When picking your Gamma Iron position, you should choose a position in which you are completely comfortable taking a 65% loss. What calculation should you do in order to make this decision?
(total Debit) * 0.65
When should you ALWAYS avoid placing Gamma Irons
when a stock is approaching “earnings”
What are the 3 scenarios in which you may close a Gamma Iron?
- Exit for 30% profit
- Exit for 60-65% loss
- Exit as expiration is approaching
How do you calculate your 30% profit value?
(total Debit) * 1.30
