What Is Gamma In Options Trading (What Does The Gamma Greek Measure)?

Episode 118

In this episode, we tackle one of the most powerful—and often dangerous—components of the "Greeks." You might know Delta, but do you know what makes Delta move?

What Is Gamma In Options Trading (What Does The Gamma Greek Measure)?

Join us as we unpack the mechanics of Gamma, using simple analogies like driving a car to explain how it acts as the "accelerator" for your trades. We discuss why Gamma is critical for protecting your capital, specifically looking at the "landmines" of expiration week and At-The-Money positions. Whether you are buying or selling options, understanding how to monitor this metric on your brokerage platform is essential for survival.

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Key Takeaways

Gamma is the Accelerator: If Delta is the speed (velocity) of your option's price change relative to the stock, Gamma is the acceleration. It measures how fast Delta changes as the stock price moves.
The Danger Zones: Gamma is highest when an option is At-The-Money (ATM) and when it is near expiration. In these scenarios, small moves in the stock price can drastically alter your position's risk profile.
Long vs. Short Exposure: Long options (buying) generally have positive Gamma (profits accelerate), while short options (selling) have negative Gamma (losses accelerate).
Delta Neutrality is Fleeting: For advanced strategies like Delta Hedging, Gamma is the variable that forces traders to constantly rebalance their positions to stay neutral.
Protection Strategy: To manage Gamma risk, consider avoiding selling naked options near expiration, utilizing defined-risk spreads (like Iron Condors), and monitoring your Greeks daily.

"Gamma is kind of what weaponizes Delta... It's like driving downhill with no brakes. If you don't understand your Gamma, it is incredibly risky."

Timestamped Summary

0:00 - Intro: Why the "Greeks" aren't just buzzwords.
2:27 - The Analogy: Defining Gamma as the "accelerator" of Delta.
4:09 - The Landmines: Why risk spikes near expiration and At-The-Money.
6:33 - Institutional Trading: How Gamma impacts Delta Hedging.
11:32 - Practical Defense: 5 steps to protect your account from Gamma risk.

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Published on 3 days, 2 hours ago

Podcast Episode Details

What Is Gamma In Options Trading (What Does The Gamma Greek Measure)?