The last year 2020 impacted the stock market in a roller coaster manner and its effect continues to show colors in the current year 2021 as well. It is no news that this industry is highly volatile in terms of maintaining a portfolio. And at the same time, it is equally true that many old words lose existence herein and new ones keep floating. One must keep their terminology updated to survive better in stock trading. Owing to the previous year’s market pattern, one of the latest pop-up words making it to the trends is gamma flip point.
What is meant by Gamma Flip?
To understand this term, let’s bifurcate both the words and understand their meaning separately. Look below to find the wholesome sense of this buzzword.
- Gamma is said to be the first derivative in the Black-Scholes model regarding option delta. It helps to track the reaction of the delta as and when the price fluctuates.
- Flip has the general meaning of the common language wherein it reflects a change. Similarly, in the stock market as well, flip indicates an opposite switch from the previous situation.
So, it can be said that the gamma flip point tells the rate of change in option delta concerning an equity asset in the given time. It helps to take the crucial decision whether the investor wants to take the investment down or keep it going as per the price movement.
The delta exposure increases when the price of the stock falls and the investors consider buying more in this positive case. Contrarily, a negative gamma is when the investors have to sell the securities to adjust to the market changes. Volatile or high gamma is preferred by risk-takers but beginners may avoid and stick to predictable gamma for more safe play.