What is Gamma in Options?

Gamma measures how much an option’s delta changes when the price of the underlying asset changes by one unit. It is a “second-order” option Greek that indicates how sensitive an option’s delta is to movements in the underlying.

For example, 

• Suppose an option has a delta of 0.50 and a gamma of 0.05.
• Now, a ₹1 rise in the underlying would theoretically increase its delta to approximately 0.55, assuming other factors remain unchanged.

Gamma is generally highest for “at-the-money” options close to expiry and remains lower for options that are ITM (in-the-money) or OTM (out-of-the-money). 

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