Gamma and rehedging P&L
You are long an option (long gamma) and delta-hedged. As the underlying moves, does rehedging make or lose money on the hedge (ignoring theta)?
Show hints (2)+
- Long gamma ⇒ delta moves in your favor with price.
- What you earn from rehedging is paid for by theta.
Answer
Reveal answer →Final answer
Makes money - you buy low and sell high; it is financed by theta decay
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Interview format: Market Maker, Hedge Fund Quant