Meet the Option Greeks - Gamma
Gamma is an option Greek that measures the rate of change in the delta of an option. It represents the rate at which the delta of an option changes as the underlying asset price changes.
Gamma is calculated using mathematical models such as the Black-Scholes model. The gamma value indicates the expected change in the delta of the option given a $1 change in the underlying asset price. For example, if an option has a gamma of 0.05, it means that if the underlying asset price increases by $1, the delta of the option is expected to increase by 0.05.
Gamma is an important measure for option traders as it helps them understand the sensitivity of their position to changes in the underlying asset price. A higher gamma value implies that the delta of an option changes more rapidly as the underlying asset price changes, which can result in significant changes to the option's price. As a result, option traders need to be aware of gamma when adjusting their positions or setting up hedging strategies.
Gamma is calculated using mathematical models such as the Black-Scholes model. The gamma value indicates the expected change in the delta of the option given a $1 change in the underlying asset price. For example, if an option has a gamma of 0.05, it means that if the underlying asset price increases by $1, the delta of the option is expected to increase by 0.05.
Gamma is an important measure for option traders as it helps them understand the sensitivity of their position to changes in the underlying asset price. A higher gamma value implies that the delta of an option changes more rapidly as the underlying asset price changes, which can result in significant changes to the option's price. As a result, option traders need to be aware of gamma when adjusting their positions or setting up hedging strategies.
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