[qeternity]

This is an overly simplistic view of options trading. Let’s say I had a view that the stock was going to be volatile, more so than options implied, but didn’t have a directional view. I could buy the calls and short the stock and scalp my gamma during the move.

Or let’s say I was short the stock and wanted to hedge during a volatile FOMC period.

[toochtooch]

How exactly are you scalping gamma by buying calls 24 hours before expiration?

[qeternity]

I’m not really sure what you mean. If I buy 10 lots of ATM 0dte puts, and 5 lots of underlying, I will have a delta neutral position. If the market moves up, my put delta will be less than 50 due to gamma, so I am now net long. So I sell some underlying for a small profit which takes me back to delta neutral. Then the market moves back down again, and my put delta increases leaving me net short (again due to gamma). So I buy some underlying to keep me delta neutral. This is called gamma scalping.

In the above, I’ve just realized a small profit by trading the underlying and a small bit of theta burn. As long as the former is greater than the latter (as long as realized vol > implied vol) I make money.

Rinse and repeat this process over and over again.

[nameistaken]

You and I have vastly different definitions of 'overly simplistic'.

Scalping your gamma?

Feels like the stock market is just a bunch of jargon, subterfuge and financial sleight of hand. Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.

Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.

Well, next to gamma scalping.

[qeternity]

> Feels like the stock market is just a bunch of jargon

This is literally every industry. Do you think the average trader can understand the majority of discussions on HN w/o any domain experience? The jargon exists for a reason.

> Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.

The financial engineering issues in 2008 were fueled by other issues: simply we had the government suppressing true borrowing costs and fueling a housing bubble under socially progressive cover. These moves almost universally end in disaster historically. The "out of thin air" products I presume you're referring to all had/have legitimate use-cases: the problem is that nobody bothered to do proper risk management because the US Government was fanning the flames in one direction.

> Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.

That's probably because you don't understand the positive aspects. Shorting is absolutely critical to well functioning and efficient markets. It's not simply evil hedge funds betting against businesses or whatever trope you might have heard.

In fact, if housing was an easily shortable asset class, the above crisis you mention would have been far less severe (or possibly not happened at all) as short selling pressure would have kept prices at more reasonable levels.

[mlyle]

> Feels like the stock market is just a bunch of jargon, subterfuge and financial sleight of hand.

Here, what they're doing is establishing a position which will make money if the stock moves either direction out of a narrow band. If you believe there's going to be a big industry upset, but don't know whether it will hurt or harm a specific player, you might enter this position. In turn, the overall market volatility is reduced and liquidity is added by your information being added to the market.

> Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.

All kinds of simple, legitimate reasons to short stocks. E.g. you are excessively exposed to that company's welfare for some reason (stock options, they're an important vendor, they're a big component in a mutual fund you own but you'd rather not own their stock, etc)-- you can take an opposite position by shorting. Or, here, you can use it to offset an option that moves in the opposite direction.

> Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.

This isn't too much like the house of cards from 2008. These types of strategies are not new; offsetting short positions by writing or buying options was in frequent use in the 1970s, if not before. Option use to profit from volatility (or hedge volatility) dates back more than 2000 years.

I'm not a big fan of esoteric, complicated financial schemes, or in creating options and financialized products for everything (e.g. cap and trade)... or situations where market players profit from privileged access to marketplaces (e.g. HFT). But the things you name are not any of these.

[mejutoco]

> Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.

What are your thoughts on insurance? Because shorting can be an insurance/hedge against price changes.