Uncle Theta: The Devil in the Gamma – The Risk of Selling Options Close To Expiry
There has been a huge interest, recently, in doing the "mad option selling" thing. Some of this involves selling a very large number of out-of-the-money options close to expiry. On the expiry day, or the day before it, you sell a truckload of options just a couple strikes away from the Nifty or Banknifty, and laugh all the way to the bank as the market lets them expire worthless. The problem with this is simple: The devil lies in the Gamma, where a big move on expiry day wipes you out.