Gamma is the first derivative of delta and is used when trying to gauge the price movement of an option, relative to the amount it is in or out of the money. If you think about delta as the speed of an option, think about gamma as the acceleration. In that same regard, gamma is the second derivative of an option’s price with respect to the underlying’s price. When the option being measured is deep in or out of the money, gamma is small. When the option is near or at the money, gamma is at its largest. All options that are a long position have a positive gamma, while all short options have a negative gamma.
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