Gamma
The rate at which an option's delta changes for a one-unit change in the underlying.
Formula
Gamma = Change in Delta / Change in Underlying Price
Unit
ratio (x, times)
In depth
Gamma measures how fast an option's directional exposure shifts, which is why it is the Greek that determines how quickly a position becomes dangerous. It is highest for at-the-money options near expiry, meaning a written option that looked safely out of the money can acquire full directional exposure within hours on the last day. This is the mechanism behind large losses in weekly expiry writing: the position was small in delta terms right up until it was not. Option buyers are long gamma and benefit from large moves; writers are short gamma and are harmed by them.
Worked example
A call with delta 0.55 and gamma 0.002 gains 0.002 x 100 = 0.20 of delta per 100-point move, taking delta to 0.75 after a 100-point rise. Near expiry the same option might have gamma of 0.01, moving delta a full point per 100.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Gamma” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.