From market making to gamma scalping: inventory management is the common thread

WuBlockchain republished a lengthy article by @Boywus arguing that a wide range of trading strategies, from fixed-distance market making to gamma scalping and even grid trading, can be reduced to the same practical question: once price moves, how much inventory should a trader hold? The piece strips away the usual aura around both disciplines. Market making is often associated with low-latency infrastructure, order book microstructure and firms such as HRT, Jump and Citadel Securities. Gamma scalping, by contrast, is usually framed through option pricing models, volatility surfaces, dynamic delta hedging and Greek-letter risk management. Yet the article says that, at the execution layer, both often translate into a familiar pattern: buy more as price falls and sell more as price rises. It also stresses that similar trading paths do not imply identical profit sources. A simple market maker earns spread while taking inventory risk and adverse selection risk. A long-gamma trader pays upfront for convexity, then tries to monetize realized price swings through repeated delta hedging. The article extends that logic to so-called “synthetic” or manually written gamma-like rules, including grid strategies, and ends with a “sugar cane and cola” analogy to explain how options market makers package linear instruments into nonlinear payoff products.