I might have stumbled upon a contradiction in the concept of gamma for options.
Per CFA Institute readings, “Valuation of Contingent Claims” by Brooks et al, it is stated that “gamma is always non-negative” (LOL – you mean positive ?)
HOWEVER,
Per Investopedia, authored by James Chen, “All options that are a long position have a positive gamma, while all short options have a negative gamma.”
Who is correct ? Do any of you know ? Please share.
Non-negative means positive or zero. Presumably, gamma could be zero.
Options have positive gamma. If you’re long an option then you’re long (positive) gamma, so your portfolio has positive gamma. If you’re short an option then you’re short (positive) gamma, so your portfolio has negative gamma.
Brooks is correct.
Chen’s wording is poor, which is what makes his statement incorrect. The options have positive gamma, and it’s not the options that are long or short, it’s the position in options that is long or short.
