Options Gamma

What gamma measures

Delta is the option's sensitivity to price; gamma is the sensitivity of delta. High gamma means delta can swing quickly, so the position's behaviour changes fast as the stock moves.

Gamma is largest for at-the-money options and grows as expiration approaches, which is why short-dated positions feel abrupt.

Why gamma matters for risk

Long options are long gamma and benefit from movement; short options are short gamma and are hurt by large moves, especially near expiration. Short-dated short-gamma positions can lose value very quickly.

• Short gamma near expiration magnifies pin and gap risk.
• Long gamma can be offset by time decay (theta).
• Position size matters more as gamma rises.

FAQ

Is high gamma good or bad?

It depends on direction of exposure: long gamma benefits from movement, short gamma is hurt by it.

When is gamma highest?

At the money, and it rises as expiration approaches.

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