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Options Indicators
(the Greeks):
Gamma
Gamma has a close relationship to Delta. Delta
describes the rate of change of an option's fair value with respect to
price changes of its underlying. Gamma describes Delta's rate of change
with respect to the price of the underlying. Gamma helps predict how
Delta will change as the price of the asset's underlying changes.
Therefore, Gamma shows Delta's sensitivity to small changes in the
asset's price. Basically, Gamma estimates by how much the Delta of an
option will change when the price of a stock moves $1.00. Gamma can tell
you how �stable� your Delta is. A big Gamma indicates that the Delta of
your underlying can start to change dramatically � even for a small move
in the underlying price. Gammas are highest for
at-the-money options. As you go in-the-money or out-of-the-money, Gamma
decreases. Gamma is sometimes used as a risk management tool to manage
large portfolios. Options with a high Gamma are most responsive to price
movements.
- Positive
Gamma - Long calls and long puts;
- Negative
Gamma - Short calls and short puts;
- Because a
stock's Delta is always 1.00 and never changes, stocks have Gamma values
of zero.
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