is the that measures the rate of change of . Since delta represents the probability of an option expiring in-the-money (ITM), Gamma represents an option's changing probabilities with changes in the stock price. This is one risk that is present when . Understanding gamma and delta, especially in regards to options that are close to expiration, is critical to increasing your .
A table comparing two at-the-money (ATM) options, one with 365 days to expiration and one with 4 hours to expiration was displayed. The table compared the Gamma, probability of expiring ITM and probability of expiring ITM after a 1-point move. This demonstrated that options close tohave higher gamma levels because changes in the underlying will lead to more significant changes in the probability of the option being valuable at expiration. An at-the-money option expiring at the end of the day will experience large swings from small movements in the underlying.
Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the valuable takeaways and a better understanding of Gamma.