Gamma
The rate of change of delta per $1 move in the underlying — it measures how fast delta itself accelerates.
Formula
Γ = ∂²V / ∂S² = ∂Δ / ∂S
Gamma is the second derivative of option price with respect to the underlying. A high-gamma option sees its delta shift rapidly with small moves in spot, making the position harder to hedge statically.
Gamma is highest for at-the-money options near expiration — a $1 move can shift delta dramatically. This is why short-term ATM options are called gamma bombs: a seller of 0-DTE options is short enormous gamma.
Being long gamma means you profit from large moves in either direction (offset by negative theta). Being short gamma means you collect premium but risk explosive losses on big moves.
Related Terms
At the Money (ATM)
An option whose strike price equals (or is very close to) the current spot price of the underlying.
IntermediateDelta
The rate of change in an option's price for a $1 move in the underlying. Ranges from 0 to 1 for calls and −1 to 0 for puts.
IntermediateImplied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
AdvancedThe Greeks
The collective name for the sensitivity measures — delta, gamma, theta, vega, rho — that describe how an option's price responds to changes in market variables.
IntermediateTheta
The daily rate of time value erosion in an option's price, assuming all else stays constant. Usually negative for long options.
IntermediateVega
The sensitivity of an option's price to a 1-percentage-point change in implied volatility.
Advanced