What Does a Negative Gamma Exposure Signify for a Trader?
A negative Gamma exposure, typically from selling options (short options), signifies that the trader will lose money from large movements in the underlying asset's price, regardless of the direction. The portfolio's Delta will move against the trader with large moves, forcing costly rebalancing.
This exposure is characteristic of strategies that profit from time decay (Theta) and stability.
Glossar
Negative Gamma Exposure
Definition ⎊ Negative gamma exposure indicates that a derivatives portfolio's delta will decrease as the underlying asset price falls and increase as the price rises.
Exposure
Volatility ⎊ Exposure, within cryptocurrency and derivatives markets, represents the degree to which an instrument’s value can fluctuate due to shifts in underlying asset prices or implied volatility surfaces.
Negative Gamma
Exposure ⎊ Negative Gamma represents a portfolio sensitivity where an increase in the underlying asset price leads to a decrease in the option seller’s delta, necessitating further hedging activity.