What is gamma in options?
In one line: Gamma is how much an option's delta changes when the underlying stock moves $1. It shows how fast the option's sensitivity speeds up or slows down.
A simple example
A stock trades at $100. A Call option with a $100 strike has a Delta of 0.50 and a gamma of 0.05.
- The stock rises $1 to $101. Delta goes up by the gamma: 0.50 + 0.05 = 0.55.
- Another $1, to $102. Delta is now about 0.60.
So the option gains a little more for each extra dollar the stock moves. The first $1 added about $0.50 to the option's price. The next added about $0.55.
If the stock falls instead, delta shrinks the same way. 0.50 → 0.45 → 0.40.
Where gamma is biggest
- Near the money: options with a strike close to the stock price have the most gamma.
- Near expiry: gamma gets very large for at-the-money options in the last days.
- Far out of the money: gamma is small. Delta barely changes.
Why it matters
Gamma tells you how jumpy an option's price will be. High gamma means delta can change fast, so the option's value can swing hard in a few hours.
That cuts both ways. For a buyer, gains can speed up. For a seller, losses can speed up too. That's why selling options that are close to the money, near expiry, carries extra risk.
See how price changes across stock prices in the options profit calculator. The basics are in options trading basics.
A common mistake
Treating delta as fixed. If you size an option trade on today's delta, a big move can change your exposure a lot. Gamma is the reason.
Gamma and Theta usually go together. Near-expiry, at-the-money options have high gamma and lose time value fast. Know both before you trade one.
Questions
Is gamma positive or negative?
For anyone who buys a call or a put, gamma is positive. For the seller of that option, it's negative.
Why is gamma highest at the money?
That's where the option is closest to switching between finishing in or out of the money, so small moves change the odds most.
What is a gamma squeeze?
A popular term for when option dealers buy shares to hedge calls they sold, which can add to a fast rise. It's hard to see or time from outside.
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