Gamma

Delta measures how much an option's price changes with the underlying price. But delta itself is not fixed; it changes as the underlying moves. Gamma measures the rate of that change, so it shows how quickly an option's sensitivity is shifting.

For example, an option with a delta of 0.50 and a gamma of 0.05 would have a delta of about 0.55 if the share price rose by 1, and about 0.45 if it fell by 1.

Gamma is highest for options that are at the money and close to expiry, because their delta can swing quickly between near zero and near one. It is low for options deep in or far out of the money.

Gamma matters for hedging. Traders who hold options with high gamma need to adjust their delta hedges frequently as prices move. Buyers of options have positive gamma, which benefits from large price moves, while sellers have negative gamma, which can lead to rapidly growing losses in volatile markets.