Market Measures

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Gamma - An Underestimated Risk

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Gamma, unlike delta and theta, does not directly indicate how option prices change. Instead, it represents how much the delta (directional risk) of an option changes with moves in the underlying.

Two important things to know about Gamma:

  1. Gamma is greater for ATM options.
  2. ATM Gamma increases quickly towards Expiration. However, further OTM / ITM Gamma tends to decrease over time.

So, how can premium sellers reduce Gamma risk? Watch this segment with Tom and Tony for the takeaways, and how gamma risk could impact your positions.

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