Start the conversation
Have you ever watched kids explode a watermelon?
It became a popular "science" activity back when everyone was staying home during Covid, and a quick search pulls up dozens of youtube videos.
The videos are pretty much all the same. A group of kids put a rubber band around a watermelon... and then another one... and then another one... and nothing happens. So they put another one... another one...
Another one... until a few hundred rubber bands are all wrapped around the watermelon. At this point, the watermelon is still in one piece, but if you look closely, you can start to see the signs that the watermelon is on the edge of exploding. At this point, it's just a matter of when.
The kids put another rubber band around the watermelon. Then another one. And another one. One more rubber band goes on and then, suddenly...
That's where things are with the Gamma Bomb I've been warning you about. It's not quite ripe... but we're getting down to our last few rubber bands.
If you're just waking up to the potential havoc this Gamma Bomb could wreak, you're not too late. This week, I'll be breaking down exactly what's going on and why, how dangerous it all is, and how you can prepare yourself today.
When people lose money, it's almost exclusively because of their gamma exposure.
What's worse is that most people - even most traders - don't properly understand what gamma is... or how it can destroy your hard-earned capital.
I'll give you more detail later this week, but the quick version is that gamma like an option's gas pedal - in other words, it controls how quickly the option's delta is going to increase.
If you're familiar with options, then you know that delta tells us how much an option's value changes when the underlying stock goes up $1. Gamma tells us how delta moves as the underlying stock moves.
Here's an easy example. We have a long $40 call option for a stock currently trading at $40. Our delta is 50 (because there's about a 50/50 chance that the option expires in the money). So if the stock goes up $1, the value of the option goes up $0.50.
Now let's say the option's gamma is 5. That means that for every $1 the underlying stock goes up, our delta increases by 5. So, when the stock goes up to $41, our option's delta increases from 50 to 55. If the stock goes up to $42, our option's delta increases another 5, from 55 to 60.
But what does that have to do with a Gamma Bomb? That's a good question, and Andrew and I are hosting a dedicated Gamma Bomb Event to share exactly how you can prepare for what is coming.
So make sure you sign up for the Gamma Bomb event here if you haven't already.
It's time to get geared up. I'll see you tomorrow.
About the Author