The Gamma Cliff: August 21st- Mark The Date
Cem Karsan is flagging August 21, the monthly options expiration (OPEX) date, as the setup for what he calls a gamma cliff. On August 21st, one of the year's larger concentrations of monthly options open interest will expire or roll forward. What happens next is worth watching. Options market makers must hedge their risk by trading the underlying stock. The aggressiveness of their hedge trading is driven by their aggregate gamma (gamma measures an option's sensitivity to price changes as the stock moves). As option expiration nears, gamma on at-the-money contracts builds sharply, forcing…
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