Gamma Neutral Option Strategies

This is a list of gamma neutral option strategies:

Gamma neutral means that total gamma of the combined position is approximately zero.

Positive gamma means that the position's delta increases as underlying price goes up (so profits accelerate and losses slow down).

Negative gamma means the opposite: Delta goes down as underlying price rises, which results in accelerating losses and decelerating profits.

Gamma Neutrality Can Change

Note that with some gamma neutral strategies (those involving multiple strikes, such as vertical spreads), gamma can become positive or negative when underlying price moves away from its original level.

In case of vertical spreads, total gamma is near zero only when underlying price is about halfway between the two strikes. It becomes positive when the underlying moves closer to the long strike, and negative if it gets closer to the short strike (because both calls and puts generally have highest gamma at the money).

Gamma Neutrality Depends on Strike Selection

This also means that the above listed strategies are gamma neutral only when opened with a particular combination of strikes, relative to current underlying price.

For instance, when you enter a bull call spread with both strikes above the current underlying price, total gamma will be positive, because the lower strike long call will be much closer to the money than the the higher strike short call.

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