Gamma = Sensitivity of an option to changes in delta

What is gamma

Gamma is an indicator used in trading options that measures how quickly the delta of an option changes in response to changes in the price of the underlying asset.
Put simply, gamma shows how sensitive delta is to small movements in the asset's price.

The relationship between delta and gamma

• Delta measures how much the option's price changes when the underlying asset's price changes by 1 unit.
• Gamma measures the change in delta when the underlying price changes.
• A high gamma means delta changes rapidly, which increases the option's sensitivity to price moves.

Why it matters to investors and traders

• Risk management — gamma helps estimate how quickly a portfolio's exposure to the asset price can change.
• Options strategies — traders use gamma analysis to decide whether to buy or sell options.
• Volatile markets — gamma is typically higher for options that are close to expiration or "at-the-money".

How gamma affects trading

• High gamma = greater risk of sharp changes in the option's value.
• Low gamma = more stable delta, suitable for more conservative strategies.
• Traders often monitor gamma alongside other Greek letters such as vega and theta for comprehensive analysis.

Gamma on the Stonkee platform

On Stonkee, you can track gamma for selected options. AI evaluates whether the current gamma means greater profit potential or rather increased risk, and suggests any adjustments to your portfolio.

Summary

Gamma is a key metric in options trading that complements the information provided by delta. A proper understanding of gamma helps manage risk and plan trading strategy more effectively.