Long gamma? No. Short vega into the Fed
Asked at Susquehanna, IMC
You make markets in index options. Your book is carefully delta-neutral, so a small move in the underlying costs you little. But from selling premium all morning you are net short vega and short gamma, and a central bank rate decision hits in one hour. Your delta limit is fine.
Why is "delta-neutral" not the same as "safe" here, and what do you do?
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.