Options trading
Gamma
Definition
Gamma is the estimated change in delta for a $1 move in the underlying. It is highest for at-the-money options close to expiration, which is why short-dated options can swing so fast.
Example
Say a call has a delta of 0.50 and a gamma of 0.08. If the stock rises $1, delta climbs to about 0.58, and after another $1 to about 0.66, so each dollar adds more to the option’s price than the one before. A similar call with months to go might have a gamma of 0.02, and its delta would only reach 0.52 after the first $1.
Hypothetical numbers, for illustration only.
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