Gamma (Options)

Gamma measures the rate of change of an option's delta with respect to changes in the underlying asset price. It represents the second derivative of the option price relative to the stock price. High gamma means delta changes rapidly, requiring more frequent delta-hedging adjustments. Gamma is highest for at-the-money options near expiration and approaches zero for deep in-the-money or deep out-of-the-money options. Long option positions (buying calls or puts) have positive gamma, meaning they benefit from large price moves in either direction. Short option positions have negative gamma, making them vulnerable to sudden large moves. Gamma risk is a major concern for options market makers and is closely related to the concept of "gamma scalping" — profiting from rebalancing delta hedges in a volatile market.