Gamma and vega age differently

Gamma and vega age differently.

Today, they look like the same bell sitting around the strike. Run the clock forward and they go completely different ways.

Both peak at the strike for a reason.

Gamma is highest around the strike because that’s where the option flips from out of the money to in the money. That’s where the delta changes the most.

Vega is highest around the strike because that’s where the option has the most time value. Implied vol matters to an option because it drives the time value.

Now watch them through time.

As you get close to expiry, gamma piles up around the strike into that pin shape. That’s where the pinning effects come from.

The vega bell just fades away. It still peaks around the strike, but the whole profile shifts down towards zero, and the amount of vega you have, wherever spot is, keeps getting lower as time passes.

So an option near expiry and near the strike is a lot of gamma and very little vega.

You can see it in a couple of things I’ve written about recently. A 0DTE fly is almost pure gamma, so you’re trading the path of the day and implied vol barely matters. The SMH calls out to December and January were the opposite. Plenty of vega, and the level of vol when you bought them mattered a lot.

Same instrument, very different risk, depending on how much time is left.

Worth having that picture in your head when you’re working out which risk you actually own.

Knowing which risk you own at each point in a trade’s life is one of the things that are vital in my framework. How the Greeks shift as time passes. Why the same option is a different trade a week later. What to watch as expiry gets close.

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