Gamma
Rate of delta change
What is Gamma?
Gamma Gamma measures how much an option's delta changes for every $1 move in the underlying stock. It is the second-order Greek — the rate of change of delta, which is itself the rate of change of option price. A gamma of 0.05 means the option's delta will change by 0.05 for each $1 move in the stock. Gamma matters because delta is not linear. Consider a 0.20 delta out-of-the-money call. If the stock rallies $5 and the call moves to at-the-money, delta is no longer 0.20 — it's now 0.50 or higher. The non-linear acceleration is captured by gamma. Without understanding gamma, traders consistently mis-estimate how their P&L will behave through different stock-price paths. Gamma peaks at-the-money and decays on either side. It also increases dramatically as expiration approaches: a 30-DTE ATM option might have gamma of 0.025; the same strike at 7 DTE might have gamma of 0.08; at 0 DTE in the final hour, gamma can be 0.30 or higher. This concentration of gamma is what makes 0DTE options so volatile and short-dated short-premium strategies so dangerous. Long options (long calls or long puts) have positive gamma — large moves help the position because delta accelerates favorably. Short options have negative gamma — large moves hurt because delta accelerates unfavorably. Premium sellers are net short gamma; this is their dominant risk source. Aggregate market-level gamma is the basis for Gamma Exposure (GEX) analysis. When market makers are net long gamma across all open positions, they sell rallies and buy declines to stay delta-neutral, suppressing intraday volatility. When they're net short gamma, they buy rallies and sell declines, amplifying volatility. The "gamma flip" — the price at which net dealer gamma changes sign — is one of the most watched intraday signals in equity markets. For individual options traders, gamma is the warning sign of expiration risk. As expiration approaches, gamma rises and can convert a winning trade into a losing trade within hours on a small directional move. Most experienced premium sellers close positions at 21 DTE specifically to avoid the gamma explosion in the final two weeks.
Complete Definition
Gamma measures how much an option's delta changes for every $1 move in the underlying stock. It is the second-order Greek — the rate of change of delta, which is itself the rate of change of option price. A gamma of 0.05 means the option's delta will change by 0.05 for each $1 move in the stock. Gamma matters because delta is not linear. Consider a 0.20 delta out-of-the-money call. If the stock rallies $5 and the call moves to at-the-money, delta is no longer 0.20 — it's now 0.50 or higher. The non-linear acceleration is captured by gamma. Without understanding gamma, traders consistently mis-estimate how their P&L will behave through different stock-price paths. Gamma peaks at-the-money and decays on either side. It also increases dramatically as expiration approaches: a 30-DTE ATM option might have gamma of 0.025; the same strike at 7 DTE might have gamma of 0.08; at 0 DTE in the final hour, gamma can be 0.30 or higher. This concentration of gamma is what makes 0DTE options so volatile and short-dated short-premium strategies so dangerous. Long options (long calls or long puts) have positive gamma — large moves help the position because delta accelerates favorably. Short options have negative gamma — large moves hurt because delta accelerates unfavorably. Premium sellers are net short gamma; this is their dominant risk source. Aggregate market-level gamma is the basis for Gamma Exposure (GEX) analysis. When market makers are net long gamma across all open positions, they sell rallies and buy declines to stay delta-neutral, suppressing intraday volatility. When they're net short gamma, they buy rallies and sell declines, amplifying volatility. The "gamma flip" — the price at which net dealer gamma changes sign — is one of the most watched intraday signals in equity markets. For individual options traders, gamma is the warning sign of expiration risk. As expiration approaches, gamma rises and can convert a winning trade into a losing trade within hours on a small directional move. Most experienced premium sellers close positions at 21 DTE specifically to avoid the gamma explosion in the final two weeks.
Example
A 30-DTE ATM SPY call has gamma ~0.024. If SPY rallies $5, the call's delta increases from 0.50 to roughly 0.62 (0.50 + 0.024 × 5). The same option at 7 DTE has gamma ~0.08 — the same $5 rally would push delta from 0.50 to 0.90.
Formula
Related Terms
Frequently Asked Questions
What does gamma mean in options?
Gamma measures how much delta changes for each $1 move in the underlying. It's the rate of change of delta. High gamma means rapid delta shifts; low gamma means delta is relatively stable.
Why does gamma increase near expiration?
As time runs out, option prices become more sensitive to the underlying because there's no time for adverse moves to reverse. Mathematically, gamma scales with 1/sqrt(time), so the closer to expiration, the larger gamma becomes.
What is gamma risk for option sellers?
Short option sellers have negative gamma, meaning large moves accelerate losses. A 1% intraday move can wipe out weeks of theta accumulation on a 0DTE iron condor due to gamma. Sellers manage this by closing positions before the final 14 DTE and sizing conservatively.
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