Gamma Scalping

That would just be a long straddle without the 'scalping' part. You'd still be long gamma, but you wouldn't be capturing the oscillation profits. The 'scalping' specifically refers to the active hedging that locks in small profits from movement.

It depends on your threshold. With a ±25 delta threshold, you might hedge 1-5 times per day on a moderately volatile stock. Some days may have no hedges; others may have many.

Technically you can buy straddles and trade stock in a TFSA, but frequent trading may cause CRA to consider it business income rather than investment gains. Consult a tax professional. For safety, gamma scalping is often better in margin accounts.

In a strong trend, gamma scalping struggles ('gamma bleeding'). You keep hedging against the trend, locking in small losses. The unhedged straddle might actually perform better in a strong trend. Oscillation is key for scalping profits.

You need capital for the straddle plus capital to hedge. For an $80 stock, a straddle might cost $600, but you may need to buy/sell up to 50-100 shares at times ($4,000-$8,000). Total: $5,000-$10,000 minimum for one position.

Lower threshold (±15): More trades, more commission, captures more oscillations. Higher threshold (±30): Fewer trades, less commission, misses small oscillations. Consider your commission cost - if high, use wider threshold. If low (IBKR), can use tighter.

Delta-based is generally more efficient - you only trade when meaningful delta develops. Time-based (hourly/daily) is easier to manage but may hedge at suboptimal times. Most retail gamma scalpers use delta thresholds.

Track daily P&L decomposition. Your broker may show this, or calculate: Day's P&L = Change in straddle value + Hedge P&L. If consistently positive despite theta, scalping is working. If consistently negative, theta is winning.

IV drop hurts you (negative vega from being long options). This is an additional loss on top of theta. IV drop often accompanies low realized vol, so it's a double hit. Best to enter when IV is already low to minimize this risk.

Yes, but strangles have less gamma (OTM options). You'll have less scalping opportunity but also less theta decay. Strangles are cheaper but require larger moves or more time for scalping to accumulate.

Market makers get gamma from customer flow (they sell to buyers, buy from sellers). They hedge continuously with near-zero commissions. Their edge comes from bid-ask spread, not pure gamma scalping. They're also diversified across many underlyings.

Higher IV → Options more expensive → Higher theta → Need more scalping. But higher IV often means higher realized vol too. The key is the spread: if realized vol > implied vol, scalping profits. Optimal frequency balances costs vs capture.

Gamma scalping is highly path-dependent. An oscillating path (80→82→79→83→78→81) provides many scalping opportunities. A trending path (80→81→82→83→84) provides few. Same realized volatility, very different scalping P&L.

Yes, through asymmetric hedging. If bullish, hedge faster on up-moves than down-moves. This lets you run profits in your expected direction while hedging the other way. Risk: wrong about direction and you've added to losers.

Key metrics: (1) Scalping efficiency (actual vs theoretical gamma P&L), (2) Theta capture ratio (scalping P&L / theta decay), (3) Commission-adjusted return, (4) Sharpe ratio, (5) Max drawdown. Decompose P&L into gamma, theta, vega components.