Gamma is a key Greek metric in Options trading that measures the rate of change of delta relative to changes in the underlying asset’s price. Delta represents how much an Option’s price moves with the asset, and gamma indicates how stable or sensitive that delta is. High gamma means delta can change rapidly, increasing risk and reward. Gamma is highest for at-the-money options and near expiry. Traders use gamma to manage portfolio exposure and hedge effectively. Understanding gamma helps assess the risk of sudden movements in an option’s value, especially in volatile markets or short-term strategies.
Example:
An Options trader monitors gamma to understand how rapidly an Option’s delta will change as the underlying stock moves.
