Gamma
Gamma measures how fast an option's delta changes as the stock moves. Learn what gamma means, why it matters most near the strike, and how it helps and hurts.
Gamma measures how fast an option's delta changes as the stock moves. If delta is your option's speed, gamma is its acceleration.
You need delta first, so here is the one-line reminder: delta is how much your option moves when the stock moves $1. Gamma is how much that delta itself shifts as the stock keeps moving.
Speed vs Acceleration
Think about driving. Your speedometer shows how fast you are going right now. That is delta. But your foot on the gas pedal is changing that speed. That is gamma.
A high-gamma option is like flooring the accelerator: delta ramps up quickly as the stock moves your way, so your gains build faster and faster. A low-gamma option barely changes speed at all.
Here is why it matters: delta is not a fixed number. It drifts as the stock moves. Gamma tells you how much.
Watch Gamma at Work
Apple is at $200. You own a $200 call with a delta of 0.50 and a gamma of 0.05.
Apple rises to $201. Delta was 0.50, but gamma adds 0.05, so delta is now about 0.55. Your option is moving faster than it was a dollar ago.
Apple rises to $205. Delta has climbed toward 0.70 or higher. Each additional dollar in the stock now earns you more than the dollar before. That is gamma compounding your gains on the way up.
Apple falls to $195. Gamma cuts the other way too, but gently for a buyer. Delta shrinks toward 0.30, so your option loses speed as it falls. Your losses slow down. For someone who bought the option, gamma is a friend: it speeds up gains and softens losses.
Where Gamma Lives
Gamma is not spread evenly. It concentrates in two places.
Near the strike. An option right at the money has the most gamma, because that is where delta can swing the fastest between "acts like nothing" and "acts like the stock."
Near expiration. In the final days, an at-the-money option's gamma spikes hard. Delta can lurch from 0.30 to 0.70 on a small move, which makes last-week options twitchy and unpredictable. That is the "gamma risk" experienced traders respect near expiration.
- Gamma is how fast delta changes as the stock moves.
- Delta is speed; gamma is acceleration.
- For option buyers, gamma speeds up gains and softens losses.
- Gamma is highest near the strike and near expiration.
Pop Quiz
Three quick questions to see what stuck. Pick an answer and the explanation shows up right away.
If delta is speed, what is gamma?
Gamma is the rate of change of delta, exactly like acceleration is the rate of change of speed.
Where is gamma the highest?
At-the-money options near expiration have the most gamma, because delta can swing fastest there.
You own a call with a delta of 0.50 and gamma of 0.05. The stock rises $1. What is the new delta?
Gamma adds to delta as the stock rises: 0.50 plus 0.05 is about 0.55. Your option is now moving a little faster.
Bottom Line
Gamma is the Greek that makes options exciting. It bends delta as the stock moves, so a call in your favor speeds up and one against you slows down. That curve is why a small, correct bet can turn into an outsized win.
The flip side is that gamma makes options near expiration jumpy. Delta can move fast, so the last week of an option's life is the wild part. Respect that, and gamma becomes a tool instead of a surprise.
Keep going: review delta since gamma builds on it, then see how time works against you with theta.