/biz/ - Business & Finance

>>50038142
Like lemme use SPY as an example. Suppose I want to go long theta and be as risk averse as possible. According to the greeks, if I short 310 calls and short 286 puts, this gives me a gamma of 0 (delta does not change). Then, I minimize delta by going long on the stocks. This gives me an overall delta-gamma hedge, and I'd theoretically earn $19453/day for a week. Great.
But despite having an effectively risk-off position, it's still possible to lose money if the price drifts too much in either direction. Why is that? Shouldn't gamma have neutralized this?
Vega isn't really a factor, since it seems to have the same shape and breakpoints at expiry regardless of its value, and Rho doesn't even matter.

Also I realize this is a guts credit spread, but even if I reverse the values, it has the same shape profile (also this probably should go in /smg/ but it's basically unusable right now)