# Tag Info

8

Gamma is the second partial derivative of the change in the price of the option wrt to the change in the underlying. Said another way, it is the change in delta. If you write down the Black-Scholes pricing formula, you's see the gamma term: $$...\frac{1}{2}\frac{\partial^2C}{\partial C^2}(\Delta S)^2...$$ Notice that the $\Delta S$ (change in stock price) ...

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At a high level, just look at the delta. If it's so close to zero that it won't shift the price of the option by a penny, then you could say, "the option no long responds to the price of the underlying" Any price it has more or less a function of theta and vega only. In practice however, depending on the model you use, delta has some volatility input. To ...

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I, personally, like to see gamma as change in dollar delta per percent (most systems have it as "GammaP"). This way, it's much easier to think about you delta position as the market is moving around. The number above is the BS gamma which is an unscaled 2nd derivative of delta. You need to rescale it to get gammap (delta change per percent). In general, it ...

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When you're betting on the value of a stock to go up using an option (long call, short put), you're going to have a positive delta and positive gamma position -- because you're betting that if the underlying will rise, then the value of your option will increase. When you're short the stock with an option (short call, long puts), you're betting on the value ...

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