Options | Derivatives
Gamma (Options)
"Gamma measures the rate at which an option's Delta changes with movements in the underlying. It is the second-order greek."
In-Depth Definition
Gamma is the second-order derivative of the option price with respect to the underlying, or the first derivative of Delta. It measures the convexity of the options position. High Gamma means Delta changes rapidly: the position is very sensitive to price moves. ATM options have the highest Gamma, especially near expiration. Gamma is positive for option buyers (their Delta increases favorably with the market) and negative for sellers (exposed to unfavorable Delta swings). The Gamma Squeeze is a market phenomenon where market makers, to remain delta-neutral in the face of heavy OTM call buying, must buy the underlying massively, amplifying the rally — as seen with GameStop in 2021.
StarQuant Insight
StarQuant integrates Gamma into total options portfolio risk calculations to alert on high-Gamma positions requiring frequent rebalancing, and to identify Gamma Squeeze risks in crypto and equity markets with heavy options activity.
Pro Tip
Beware of negative Gamma (short options positions) near contract expiration: Gamma explodes in the final days, making delta adjustments very costly. Close or roll short positions before the last 7 days.