Gamma

If delta is the first derivative of an asset underlying a derivative and describes the change in the price of the derivative as a result of changes in the price of the underlying asset, then gamma is the second derivative and describes the rate of change of the delta as a result of changes to the price of the underlying. For options, Gamma is highest when the underlying price is near the option’s strike price and decreases as the price of the underlying moves away from the option strike price. At-the-money options have the highest gamma, since their deltas are more susceptible to changes in the price of the underlying. The difference in delta divided by the change in the price of the underlying will give gamma.

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