Greater Fool glossary / Options & Derivatives

gamma

A measure of how much delta itself will change if the underlying asset price moves by one dollar. It tells you how sensitive delta is to price changes.

In practice

A call option starts with a delta of 0.50 and a gamma of 0.10. If the stock price rises $1, the delta will increase to approximately 0.60. If the stock falls $1, the delta will decrease to approximately 0.40.

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