How Much For That Gamma?

ORATS calculates the cost for 1000 gamma for each stock. This computation is a handy way to compare the relative cost for holding enough options to produce 1000 gamma to other stocks and to compare how much you can make trading a delta neutral position.

Gamma is the greek that tells you how much your delta will change with a one dollar price change in the underlying. Scalping gamma is a term that describes the buying and selling of stock or options to flatten deltas that are changing due to the underlying price movement.

For example, if you have 1000 gamma and the stock goes up or down $1, then you theoretically make from an initial flat delta position, the average delta times the stock move. In this case the average delta is the beginning delta of zero and the ending delta of 1000 or an average of 500 delta over the $1 move in the stock. So you should make $500 on your position. Compare that to the cost of 1000 gamma and you have an estimation of your profit.

As an example, for AAPL the px1kGam in the General Core data API is $3190.85. If AAPL only went up $1 today you would theoretically lose $2690.85, making $500 on the deltas over the move and losing $3190.85 in theta decay.

You can double check this cost of 1000 gamma number by looking at the greeks of the at-the-money options a month until expiration. Today in AAPL with the stock trading $155.88 for example, the 155 strike gamma is 0.0272 and the theta is -0.913. Constructing a 1000 gamma position therefore you would need 367 contracts 1000/(0.0272*100) and multiply that times the theta and you get -$3353.61 ~$3190.85.