Options
Gamma — Definition & Example
The rate of change in delta per unit change in the underlying — the curvature of option pricing.
Gamma is the second derivative of option price with respect to underlying. It tells you how delta itself will move as the underlying moves. Gamma is highest for ATM options near expiry and decays as options move ITM or OTM. High gamma means small underlying moves cause large delta swings — explosive for buyers, terrifying for short sellers. The "gamma squeeze" phenomenon in retail markets is driven by this.
Example
NIFTY 24500 CE with delta 0.5 and gamma 0.04. If NIFTY rises 100 points, new delta is approximately 0.5 + (100 × 0.04 / 100) = 0.54. The option becomes more directional with each move toward and through the strike.
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