Gamma

Gamma measures how quickly an option’s delta changes as the underlying asset’s price moves. Mathematically, it’s the second derivative of the option’s price with respect to the underlying asset price. Gamma becomes highest when the asset price is near the option’s strike price and drops off as the price moves further away in either direction.

Options you buy (long positions) have positive gamma—your delta increases if the market moves in your favor. Options you sell (short positions) carry negative gamma—the delta worsens for you if the market moves against you. Traders often use delta hedging to keep their position balanced as prices change. However, keeping gamma low by combining opposing positions can also reduce potential profits (alpha) in the portfolio.