Theta vs Gamma Tradeoff - Quant Trader Interview Question
Difficulty: Medium
Category: Options & Greeks
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Topics: options, greeks, theta, gamma, time-decay, convexity
Problem Description
Consider the statement: "Gamma is the rent you pay for Theta." Which of the following statements best explains the meaning of this analogy in the context of options trading?
- Consider a long call option position.
- Assume volatility remains constant.
What does it mean that 'Gamma is the rent you pay for Theta?'
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