Delta Neutral Strategy, Gamma Scalping ,Vega Hedging Portfolio ,Greeks Net Greek, Exposure Dynamic Hedging

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Advanced Concepts (For Experts)

1️⃣ Delta Neutral Strategy

What is Delta?

Delta (Δ) measures how much option price changes for ₹1 move in underlying.

  • Call Delta → 0 to +1

  • Put Delta → 0 to –1

What is Delta Neutral?

A Delta Neutral strategy means your total portfolio delta = 0.

👉 This means small moves in underlying will NOT significantly impact your portfolio value.

Formula:

Net Delta = (Option Delta × Lot Size × Contracts) + Stock Delta

If Net Delta ≈ 0 → You are delta neutral.

Example (Nifty 25,600)

Suppose:

  • Sell 1 ATM Call (Delta = +0.50)

  • Sell 1 ATM Put (Delta = –0.50)

Net Delta:
+0.50 – 0.50 = 0 ✅

This is a Short Straddle → Initially Delta Neutral.

Why Experts Use It?

  • Earn Theta decay

  • Trade volatility instead of direction

  • Hedge directional exposure

  • Used by option writers & institutions

Risk

Delta neutral ≠ Risk free
If market moves strongly → Delta changes (Gamma risk)

2️⃣ Gamma Scalping

What is Gamma?

Gamma measures:

How fast Delta changes when underlying moves.

High Gamma = Delta changes rapidly.

What is Gamma Scalping?

A strategy where you:

  • Buy options (positive gamma)

  • Hedge delta repeatedly

  • Capture small price swings

How It Works

Step 1: Buy ATM Straddle (High Gamma)

Step 2: When market moves up → Your delta becomes positive
→ Sell futures to make delta neutral

Step 3: When market falls → Delta becomes negative
→ Buy futures

You keep booking small profits from rebalancing.

Who Uses It?

  • Volatility traders

  • Market makers

  • Professional desks

When It Works Best

✅ High intraday movement
✅ Volatility expansion
❌ Dead sideways market

3️⃣ Vega Hedging

What is Vega?

Vega measures:

Change in option price when Implied Volatility (IV) changes by 1%.

Why Vega Matters

Example:

You sell options before RBI policy
IV is 18%

After event → IV drops to 14%
You gain from Vega decay.

Vega Hedging

Balancing positive and negative Vega positions.

Example:

  • Sell Near Month Option (High Vega)

  • Buy Far Month Option

This reduces IV exposure.

Used in:

  • Calendar spreads

  • Earnings trades

  • Event hedging

4️⃣ Portfolio Greeks

Professionals don’t look at single option Greeks.
They manage entire portfolio Greeks.

Key Portfolio Greeks

Net Delta → Directional risk

Net Gamma → Convexity risk

Net Theta → Time decay income

Net Vega → Volatility risk

Example Portfolio

PositionDeltaGammaThetaVega
Short Strangle0-+-
Long Call++-+

Net Greeks = Combined total exposure.

This tells:

  • Are you volatility long?

  • Are you convexity short?

  • Are you earning decay?

5️⃣ Net Greek Exposure

This is the total sensitivity of your portfolio.

Formula:

Net Greek = Sum of all position Greeks

Example

If:

  • Net Delta = +150
    → Portfolio behaves like long 150 Nifty units.

If:

  • Net Vega = -20
    → You lose ₹20 for every 1% IV increase.

Institutions monitor this every minute.

6️⃣ Dynamic Hedging

Dynamic Hedging = Adjusting hedge continuously as market moves.

Because:

Delta changes
Gamma changes
Vega changes

Example

You sell 10 lots of Nifty Calls.

Market rises → Delta increases.

You:

  • Sell futures to neutralize delta.

Market falls → Delta decreases.

You:

  • Buy futures.

This continuous adjustment is Dynamic Hedging.

Used By

  • Option writers

  • Market makers

  • Proprietary desks

  • Institutional traders

🔥 How All Concepts Connect

ConceptFocus
Delta Neutral      Remove direction
Gamma Scalping    Profit from movement
Vega Hedging    Manage IV risk
Portfolio Greeks   Big picture control
Net Greek Exposure   Total sensitivity
Dynamic Hedging  Continuous adjustment

⚠️ Expert Insight

Retail traders focus on:

“Will market go up or down?”

Professionals focus on:

“What is my Greek exposure?”

That is the real difference.

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