US stocks near all-time highs has traders talking about a 'gamma flip' — and what might happen if things turn bad | Markets Insider

There is a new buzzword in town: 'Gamma Flip'. It is used to explain why the S&P seems stuck at practically all-time highs and what might happen if things turn bad. In fact, it is so hot that even TV pundits are elaborating on its potential advantages and dangers. But what exactly is it? has been around since traders began to use options to hedge, speculate, and mitigate risk. But it was not until the shiny Black-Scholes model emerged in the '70s that anyone knew what to call it.

So far, so good. You have sold some potential upside performance against a fee and hedged yourself against some downside risk. You are still interested in a positive market development and want to be long overall.However, the market maker does not share your inclination. He wants to be market neutral; he is not payed to take any directional risks and abhors the idea of predicting anything other than volatility .

Suddenly this level become very sticky. Every bit of volatility is being used to recover the lost time value of the options that the market makers are now sitting on. And as these positions slowly waste away, the urge to compensate for this by hedging with every little move becomes stronger, slowly bringing the market to a standstill.

Ireland Ireland Latest News, Ireland Ireland Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Boris Johnson 'reluctant' to accept Trump US invite for 'victory tour' - Business InsiderTrump has reportedly invited Boris Johnson to the US for a general election 'victory tour,' but Johnson is 'reluctant' to accept Guessing he's got more pressing things to deal with, like Brexit This guy. This. Guy. Is too embarrassed to be seen with Trump. This guy 👇 A newly appointed UK Prime Minister? Reluctant to be with the most powerful man on the planet? No news could be more preposterous and faker!!!
Source: BusinessInsider - 🏆 729. / 51 Read more »

Asia stocks set to open mixed as US markets reach record highsMarkets in Australia and Hong Kong are set to close earlier on Tuesday ahead of the Christmas holiday on Wednesday. Thanks POTUS realDonaldTrump made that happen!
Source: CNBC - 🏆 12. / 72 Read more »

Stock market investing strategy of fund managers who beat 97% of peers - Business InsiderA pair of fund managers beat 97% of their peers this year without picking a single stock. They gave us a peek into their unique strategy, and explained how they profit even during sell-offs. I like the progress
Source: BusinessInsider - 🏆 729. / 51 Read more »

Next market crash: Why stocks are at risk of correction early in 2020 - Business Insider'Sentiment is too darn high': A Wall Street equity chief crying foul on the stock market's melt-up lays out the evidence that a plunge is on the horizon The plunge:
Source: BusinessInsider - 🏆 729. / 51 Read more »