What is Gamma?
How fast option delta changes — the second derivative of price exposure.
Definition
Gamma (Γ) is the rate of change of an option's delta with respect to the underlying price. High gamma = small underlying moves cause large delta swings → dealer hedging trades become large. Gamma peaks at-the-money near expiry (Friday afternoons / 0DTE).
Why it matters for trading
- Gamma is what makes options markets reflexive. Dealers hedging a short gamma position must buy as price rises and sell as it falls, accelerating the move that's hurting them.
- 0DTE/dealer pinning happens because gamma is highest at-the-money near expiry; the resulting hedging flow pins SPX to high-OI strikes into the close.
- Gamma exposure shifts daily. A market that was buying puts (long gamma for dealers, dampening) can flip to a market shorting puts (negative gamma, amplifying) within a session.