Gamma

Gamma is a measure used in options trading to describe the rate at which an option's delta changes in relation to changes in the underlying asset's price. It quantifies the sensitivity of the option's delta to movements in the underlying asset. In simpler terms, gamma reflects how quickly the risk or potential gain associated with an option changes as the price of the underlying asset moves. A higher gamma value indicates that the option's delta can change more rapidly, while a lower gamma value implies a slower rate of change. Gamma is an important concept for options traders because it influences the risk and reward profile of option positions. It helps traders understand the potential impact of price movements on the value and behavior of options. Example: If you own a call option with a gamma of 0.2 and the stock price increases by $1, the option's delta will increase by 0.2. The higher the gamma, the faster the option's risk and potential gain can change with small movements in the underlying asset's price.