Gamma Neutral

Gamma neutrality is a condition in which the gamma of a portfolio is zero. This means that the portfolio's sensitivity to changes in the underlying asset's volatility is zero. Gamma neutrality can be achieved by using a variety of hedging techniques, such as delta hedging, gamma hedging, and vega hedging.

Delta hedging is a technique used to offset the change in the value of a portfolio due to a change in the price of the underlying asset. This is done by buying or selling an amount of the underlying asset that is equal to the delta of the portfolio. The delta of a portfolio is a measure of the sensitivity of the portfolio's value to changes in the price of the underlying asset.

Gamma hedging is a technique used to offset the change in the value of a portfolio due to a change in the volatility of the underlying asset. This is done by buying or selling an amount of an option that is equal to the gamma of the portfolio. The gamma of a portfolio is a measure of the sensitivity of the portfolio's value to changes in the volatility of the underlying asset.

Vega hedging is a technique used to offset the change in the value of a portfolio due to a change in the implied volatility of the underlying asset. This is done by buying or selling an amount of an option that is equal to the vega of the portfolio. The vega of a portfolio is a measure of the sensitivity of the portfolio's value to changes in the implied volatility of the underlying asset.

Gamma neutrality is often used by traders to reduce the risk of their portfolios. By hedging the gamma of their portfolios, traders can reduce the potential for large losses if the underlying asset's volatility changes unexpectedly.