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For instance, if the delta of an option is 0.90, what this means is that every time the price of an underlying asset changes by $1, the option’s price will change by $0.90. As such, if the gamma of an option is 0.30, the option will therefore change by 0.30 alongside the change in the price of the asset.
The primary reason why the gamma scalping strategy is effective in profitably trading binary options is that it eliminates the option’s theta and Vega. The theta is a measure of the changes in the price of an option over a given period of time. On the other hand, the binary option Vega is the measure of the change in the price of an option in relation to the implied market volatility. This trading strategy is significantly affected by the value of an option and the market volatility. Using it therefore protects your trade against potential theta and Vega fluctuations.
The gamma scalping strategy is an advanced trading technique. The term Gamma is a Greek terminology that defines the change in an option’s delta in comparison to the price of the underlying asset. The delta is also known as the hedge ratio, which describes the ratio of change of the price of an underlying asset in comparison to the actual price of the option.