medium · Market Microstructure
If options market makers are net 'short gamma,' what is the expected impact of their delta-hedging activity as the underlying stock price rises?
- They will do nothing, as gamma only affects the speed of price discovery.
- They will cancel their limit orders to increase the bid-ask spread.
- They must sell the underlying, dampening the price move and providing stability.
- They must buy more of the underlying, amplifying the upward price move.
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