⚙️ Stock Option Gamma

Definition

Gamma (Γ) measures the rate of change of an option’s delta for every $1 change in the underlying stock price.
While delta shows how much the option price moves, gamma shows how much delta itself will change next.

Why It Matters

Nonlinear Sensitivity: Gamma captures the curvature in option pricing as stock prices move.
Volatility Awareness: High gamma means delta can shift rapidly, especially near the strike price.
Risk Management: Traders monitor gamma to anticipate changes in directional exposure.

Example

Suppose you own a call option with a delta of 0.50 and a gamma of 0.10.
If the stock rises by $1, delta will increase to 0.60. If the stock drops by $1, delta will decrease to 0.40.

Key Insights

Gamma Behavior	Option Type	Implication
Highest	At-the-money (ATM)	Delta changes most rapidly
Lower	In-the-money (ITM) or Out-of-the-money (OTM)	Delta changes more gradually
Sharp Increase	Near expiration (ATM)	Gamma spikes, increasing risk and opportunity