How Do Market Makers Manage the Combined Risk of High Gamma and High Theta?

Market makers manage high Gamma and high Theta by actively hedging their positions. High Gamma necessitates frequent adjustments (Delta hedging) to remain market-neutral, which incurs transaction costs.

High Theta is generally beneficial for market makers as they are net short options, but the high Gamma risk must be carefully managed to prevent large losses from rapid price moves before they can re-hedge.