January 6, 2020

# Gamma Gets You Where You Want To Be

An option’s gamma is a measure of the rate of change of its delta. The gamma of an option reflects the change in the delta in response to a one-point movement of the underlying stock price.

Like the delta, the gamma is not a static measure.  It is constantly changing, even with tiny movements of the underlying stock price. It generally is at its peak value when the stock price is near the strike price of the option and decreases as the option goes deeper into or out of the money. Options that are very deeply into or out of the money have gamma values close to 0.00.

#### Example

Suppose for a stock XYZ, currently trading at \$47, there is an April 50 call option trading for \$2.00 and let’s assume it has a delta of 0.40 and a gamma of 0.10. If the stock price moves up by \$1 to \$48, then the delta will be adjusted upwards to 0.50.

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## Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

May 8, 2024

## What Is Delta In Options Trading?

Understanding the Delta of an option is crucial for both new and seasoned traders. It’s one of five specific calculations called “Greeks,” which help measure specific factors that could influence the price of an options contract. Delta is a metric that helps you gauge how much the value of an option contract is expected to […]

March 28, 2024

## Wait! There Is An Options Greek Called Rho?

Out of all the Greeks in options trading, Rho is capable of providing uniquely critical insights that others cannot offer. Rho measures an option contract’s susceptibility to changing interest rates. We’ll explain how Rho by defining its specific functions, how interest rates impact options trading, and cover some pertinent scenarios. What is Rho in Options […]

March 25, 2024

## You Have A Lot Of Options Out There

There are a number of different types of options expiration types.  In the vast majority of our signals, our options will be categorized as “American”-style options.  There are some, like VIX options, that are “European”-style options.  Here’s a quick explanation of both. The term “American style” in relation to options has nothing to do with […]

May 8, 2024

## What Is Delta In Options Trading?

Understanding the Delta of an option is crucial for both new and seasoned traders. It’s one of five specific calculations called “Greeks,” which help measure specific factors that could influence the price of an options contract. Delta is a metric that helps you gauge how much the value of an option contract is expected to […]

March 28, 2024

## Wait! There Is An Options Greek Called Rho?

Out of all the Greeks in options trading, Rho is capable of providing uniquely critical insights that others cannot offer. Rho measures an option contract’s susceptibility to changing interest rates. We’ll explain how Rho by defining its specific functions, how interest rates impact options trading, and cover some pertinent scenarios. What is Rho in Options […]