What Is "Slippage" and How Does It Affect the Cost of Gamma Hedging? ⎊ Path

What Is “Slippage” and How Does It Affect the Cost of Gamma Hedging?

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It affects the cost of Gamma hedging by increasing the total transaction cost.

When a market maker frequently trades the underlying asset to adjust their Delta (Gamma hedging), slippage on each trade accumulates, making the overall cost of maintaining the hedge significantly higher than anticipated.

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