Options Glossary
Gamma measures how fast an option's delta changes as the stock price moves. If delta tells you how much an option moves right now, gamma tells you how much that sensitivity itself is about to change.
Gamma is expressed as the amount delta is expected to change for every $1 move in the stock. An option with a delta of 0.40 and a gamma of 0.05 would be expected to have a delta of roughly 0.45 if the stock rises $1, and roughly 0.35 if it falls $1.
Gamma is highest for options that are at the money and close to expiration. That's the point where a small move in the stock can flip an option from likely worthless to likely valuable, or the reverse, so delta is at its most unstable exactly there. Deep in-the-money and deep out-of-the-money options have low gamma because their delta is already close to its extreme (near 1, -1, or 0) and has little room left to move.
Think of delta as speed and gamma as acceleration. A position with high gamma can see its directional exposure change quickly even without a large stock move, which is why option sellers pay close attention to gamma risk in the final days before expiration — it's the period when a small move can suddenly turn a seemingly safe short option into a large loss.
Gamma is mostly a risk-management concept rather than a number plugged into a single calculation. Traders use it to judge how stable their current delta exposure is, and to anticipate how much rebalancing a hedged position might need if the stock makes a sudden move.