Financial Glossary
Gamma
The Greek that measures acceleration: how fast Delta changes with price movement.
What is Gamma?
Gamma measures how much Delta changes for a $1 move in the underlying asset. If a call option has gamma of 0.05, its delta will increase by roughly 0.05 for every $1 the stock rises. Gamma is always positive for both long calls and long puts (long gamma means Delta accelerates in your favor). Short calls and short puts have negative gamma (Delta accelerates against you).
Gamma is highest for at-the-money options and lowest for deep in-the-money or out-of-the-money options. Near expiration, at-the-money gamma spikes sharply—small price moves cause rapid Delta changes. This is why at-the-money options near expiration have the most explosive behavior and highest gamma risk.
Why Gamma Matters
Gamma reveals convexity risk. If you own a call, you're long gamma: your Delta increases as the stock rises (good) but also decreases as the stock falls (bad, but less bad than linear). If you short options, you're short gamma: you make money if price doesn't move much, but lose exponentially if the stock makes a large move in either direction.
This is why option sellers need to manage gamma carefully. A short call position looks profitable in a quiet market but can blow up if the stock gaps up overnight and your delta swings from 0 to 0.80 suddenly. Gamma is the risk of rapid Delta shifts that force you to rehedge at bad prices.
Disclaimer: Gamma risk increases near expiration and for at-the-money options. Large gap moves can cause actual price changes to deviate significantly from gamma estimates. Before trading options, consult a qualified financial advisor. Options involve substantial risk, including rapid losses from gamma exposure.