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Option Greeks

Important Properties Of Gamma

Let us summarize the relationship of Gamma with different factors:

 

 

A good way to think of Gamma is the measure of the stability of an option’s probability. If Delta represents the probability of being in-the-money at expiration, Gamma represents the stability of that probability over time. 

 

If you're an option buyer, high Gamma is good as long as your forecast is correct. That's because as your option moves to ITM, Delta will approach towards 1 more rapidly. But if your forecast is wrong, it can drastically affect your position by rapidly lowering your Delta.

 

If you're an option seller and your forecast is incorrect, high Gamma is an enemy. That's because it can affect your position to work against you at a more accelerated rate- if the option you've sold moves to ITM. But, if your forecast is correct, high Gamma is your friend since the value of the option you have sold will lose value more rapidly.

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