Option Block 314: Late-Night Gamma Scalping

Option Block 314: Late-Night Gamma Scalping

Trading Block: Catching an updraft on the street today. A decent slate of earnings helped bolster the market.  New Fed Chief didn't completely destroy the market with her first remarks. WSJ writing about someone purchasing 3200 Feb $15 calls in Magic Jack before big newsletter mention. Big day for Apple.

Odd Block: Put sellers finance call buyers in Mechel OAO (MTL), and calls trade in E Commerce China Dangdang (DANG).

Xpress Block: The classic names were lighting up the OX desk today: Apple, Solar City, Facebook, Tesla, and Priceline. Plus the return of the Ideas Hub game!

Mail Block: Mark’s favorite segment.

• Question from Anath3ma - How are options stops triggered? Bid? Ask? Mid? If ask, am I then filled on the bid costing me the spread? Seems like it could be costly.
• Question from Snowbird - My friend and I like to by straddles going into earnings, but we often miss a great deal of the move that occurs after the market close. I know you have discussed this in the past by referring to the process known as "gamma scalping." I think I understand how it works - basically trading stock against your options to lock in profits - but I am cloudy on the mechanics. (FYI I am an OX customer). Let’s say I buy a straddle in my account with zero delta (50 delta call and put). Then let’s say the underlying rallies after the close and my straddle now has a 50 delta. I would then need to sell stock against that straddle to lock in my gains, but as far as the OX system is concerned, my straddle closed for the day with a zero delta. Will the system update with after-hours data to reflect the fact that my straddle now has a 50 delta, and if I sell short stock, I am essentially "locking in a profit" as opposed to naked shorting the stock? I suppose the alternative is to simply keep a large amount of free capital in your account on the off chance that you need to trade some stock against your positions in the after-hours, but that seems needlessly wasteful. Perhaps this is why you say "gamma scalping" is not viable for retail?

Around the Block: More earnings.

Marriott on 2/19; GRPN, HPQ, and PCLN on 2/20.