The Greeks
What is Gamma (Ī)?
Measures how fast delta changes as the underlying moves.
š Complete Definition
Gamma is the rate of change of delta relative to a $1 move in the underlying. High gamma means delta changes rapidly, creating both opportunity and risk. Gamma is highest for at-the-money options near expiration. This is why 0DTE trading can be volatile ā small stock moves cause large option price swings.
š Formula
Ī = āĪ/āS = āĀ²V/āSĀ² (second derivative of option value with respect to stock price)
š” Examples
- āA 0.05 gamma means delta increases by 0.05 for every $1 stock move
- āATM weekly options have much higher gamma than ATM monthly options
ā Frequently Asked Questions
Why is gamma important for traders?
High gamma creates rapid delta changes, meaning profits or losses accelerate. This is why ATM options near expiration can swing wildly in value.
š Related Terms
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