Stock Charted
Glossary

Gamma

Gamma is an options Greek that measures how much an option's delta changes when the price of the underlying asset moves by one dollar, indicating how quickly delta itself shifts.

What Is Gamma?

Gamma measures how sensitive an option's delta is to changes in the price of its underlying asset. It belongs to the family of options Greeks, which are risk measures describing the different ways an option's price can change. Delta tells you how much an option's price is expected to move for a one-dollar move in the underlying. Gamma tells you how much that delta will change. It is a second-order measure, describing the rate of change of a rate of change.

How Gamma Works

Gamma is calculated as the change in delta divided by the change in the underlying price:

Gamma = change in delta / change in underlying price

Gamma is typically highest for options whose strike price is close to the current price of the underlying, known as at-the-money options, and it tends to rise as expiration approaches. Options that are far in or out of the money usually have lower gamma. Buyers of calls or puts hold positive gamma, so their delta moves in their favor as the underlying moves. Sellers hold negative gamma, so their delta can move against them, which may require more frequent adjustments to keep a position balanced.

Example

Suppose a call option has a delta of 0.50 and a gamma of 0.05. If the underlying stock rises by one dollar, the delta would be expected to rise to about 0.55. The option would then respond more strongly to the next dollar of movement. Gamma values are estimates that change continuously as prices and time pass.

Why It Matters to Investors

Gamma shows how quickly an option's risk profile can shift. Near expiration, a small move in the underlying can cause large swings in delta, which is one reason option prices can behave less predictably at that stage. Time decay and implied volatility also influence gamma, so it is usually considered alongside other Greeks rather than in isolation. Traders who hedge options positions monitor gamma closely, because it affects how often a delta hedging position needs to be rebalanced. Understanding gamma gives investors a clearer picture of how an option position may behave as market conditions change.

Updated October 20, 2026. For general education only; not financial, tax or legal advice.

Browse the Glossary

Related Terms

Delta

Delta is an option Greek that estimates how much an option's price is expected to move for each one-dollar change in the price of its underlying asset.

Underlying Asset

An underlying asset is the financial instrument or commodity on which a derivative's value depends, such as a stock, bond, index, currency, or physical commodity.

Time Decay

Time decay is the gradual loss of an option's time-based value as its expiration date gets closer, all else being equal, so the contract becomes less valuable over time.

Implied Volatility (IV)

Implied volatility is the level of future price movement that the market expects for an asset, inferred backward from the current market price of its options.

Delta Hedging

A risk-management technique that offsets the price sensitivity of an options position by taking an opposite position in the underlying asset, aiming to keep the combined position roughly neutral to small price moves.

Theta

Theta is an options Greek that measures how much an option's price is expected to decline as time passes, with all other factors held constant.

Vega

Vega is the measure of how much an option's price is expected to change for each one-percentage-point change in the implied volatility of its underlying asset.