Understanding Option Greeks: Gamma

When it comes to trading options effectively, understanding the Greeks is essential. In this post, we'll break down Gamma, a lesser-known but vital Greek that plays a key role in how your Delta, your option's directional sensitivity, evolves.

What Is Gamma?

Gamma measures the rate of change in Delta for every $1 move in the underlying asset. In other words, while Delta tells you how much the option price will change with a move in the stock, Gamma tells you how fast Delta is changing as the stock price moves.

✅ High Gamma = Delta changes quickly

✅ Low Gamma = Delta changes gradually

Gamma is highest for at-the-money options and increases as the option approaches its expiration date.

Gamma in Action: A Look at Google $500 Calls

Let's compare how Gamma behaves for a $500 Google call option with 90 days until expiration versus 1 day until expiration.

90 Days Until Expiration

1 Day Until Expiration

Chart: Google $500 Call - Delta and Gamma at Different Expirations

Real-World Implications

Let's say you bought a call option and the stock starts moving in your favor. Thanks to Gamma, your Delta increases rapidly, making each additional dollar move more valuable. Therefore, your gains accelerate.

But if you're selling a put and the stock drops? Gamma will work against you. As the position moves in the money, Delta grows quickly, and your losses compound.

That's why professional traders carefully manage Gamma exposure, especially near expiration.

Final Thoughts

Gamma is the Greek that powers momentum in your Delta. For traders using short-term options or playing fast-moving names, understanding Gamma is crucial to managing risk and amplifying profits.

Want to go deeper? Our full course at Options Trading in 21 Days covers Delta, Gamma, Theta, Vega, and more, giving you the tools to trade like a pro.