11.29What is gamma?
1What is it?
Gamma measures how fast delta changes when the underlying moves.
2Why does it exist?
High gamma (ATM options near expiry) means option prices can swing wildly. That’s great for buyers who are right, dangerous for sellers.
3Calculation
- Delta 0.50, gamma 0.002. Nifty +100 → new delta ≈ 0.70.
Delta grew quickly: the option accelerates.
4Quick revision
- Rate of change of delta.
- Highest for ATM near expiry.
- Risky for sellers.
5Knowledge check
Q1. Where is gamma highest?Show answer
ATM options close to expiry.
Q2. Why is high gamma dangerous for sellers?Show answer
Losses can accelerate quickly.
Q3. Gamma measures change in what?Show answer
Delta.