Gamma
Definition
The rate of change of an option's delta relative to a $1 change in the underlying asset's price.
Explanation
Gamma measures how quickly delta changes. High gamma means delta is changing rapidly — the option's behavior becomes increasingly stock-like as it moves in-the-money or increasingly worthless as it moves out-of-the-money. Gamma is highest for at-the-money options near expiration. Gamma risk is a key concern for options sellers: a large gamma exposure means sudden stock moves can cause outsized losses. Market makers who are 'short gamma' must buy into rallies and sell into declines (amplifying market moves), while 'long gamma' positions require the opposite.
How Stoquity Uses This
Stoquity incorporates gamma analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.