Gamma
The rate at which delta changes as the underlying moves.
Also called: option gamma
In plain language
Gamma is the second derivative: it measures how quickly your directional exposure shifts as price moves.
It is highest for at-the-money options near expiration. That is when a small move in the underlying can swing delta dramatically.
High gamma cuts both ways. Positions gain exposure quickly in your favor and just as quickly against you.
Why it matters
Gamma is why short-dated at-the-money options feel unstable. Your effective position size is changing continuously without you doing anything.
Common mistakes
- Holding high-gamma positions near expiration without watching them closely.
- Sizing on current delta while ignoring how fast it can change.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How much an option’s price moves for a $1 move in the underlying.
How much value an option loses per day purely from the passage of time.
The date an options contract ceases to exist.
The market’s expectation of future price movement, derived from option prices.
How much an option’s price changes for a one-point move in implied volatility.