Gamma, unlike delta and, does not directly indicate how option prices change. Instead, it represents how much the (directional risk) of an option changes with moves in the underlying.
Two important things to know about Gamma:
- ATM Gamma increases quickly towards . 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.