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Gamma and Delta measure how an option’s value reacts to changes in the underlying asset’s price. Delta represents the rate of change of the option’s price relative to the underlying, while Gamma measures how Delta itself changes as price moves. Together, they describe an option’s directional sensitivity and convexity—critical for dynamic hedging and volatility-based trading strategies.

In trading, Gamma (Γ) is one of the "Greeks" in options trading. It measures the rate of change of Delta relative to the underlying asset's price movement. Delta (Δ) tells you how much an option's price will move when the underlying asset moves by one unit. Gamma (Γ) tells how much Delta itself will change when the underlying asset moves by 1 unit. So, Gamma is basically the acceleration of Delta.

Positive Gamma (+Γ):

• Long options (calls or puts) have positive gamma.
• When price moves up, Delta increases (your option becomes more sensitive and favorable).
• When price moves down, Delta decreases (your option reduces exposure).
• This means risk naturally adjusts in your favor; profits can accelerate if you're right.
• For example, if you buy a call, and the stock starts to rise, your Delta goes up, making your position even more bullish.

Negative Gamma (-Γ):

• Short options (selling calls or puts) have negative gamma.
• When price moves up, does Delta decrease in your favor? No, it actually moves against you.
• When price moves down, Delta also shifts against you.
• This means you are fighting against acceleration and may need to hedge constantly.
• Example, if you sell a call, and the stock rises, your Delta increases (you get more short exposure), which can quickly cause losses.

Visual example of Gamma and Delta:

Author: Hlomohang John Borotho