Define Gamma Risk and Its Implication for Market Makers during a Crash ⎊ Path

Define Gamma Risk and Its Implication for Market Makers during a Crash.

Gamma risk is the risk associated with the rate of change of an option's Delta relative to the underlying asset's price. When Gamma is high, Delta changes rapidly, forcing market makers to execute large, frequent trades to maintain a Delta-neutral hedge.

During a crash, high Gamma and high volatility necessitate aggressive selling of the underlying asset as prices fall, which amplifies the market's downward momentum.

What Is ‘Gamma’ and Why Is a High-Gamma Position Sensitive to Small Price Movements?

How Does “Negative Gamma” Contribute to Market Instability?

What Is the Role of Gamma Hedging in Managing the Risk of a Quoted Options Book?

What Is ‘Gamma Risk’ and How Is It Managed?

What Is the Practical Implication of High Gamma for a Market Maker in Volatile Crypto Options?

What Is “Gamma Risk” for Options Sellers and How Does It Complicate Hedging Strategies during Volatile Periods?

What Does an Option’s Gamma Measure and Why Is It Crucial for Delta Hedging?

What Is “Gamma Risk” and How Does It Relate to Delta Hedging during High Volatility?

Glossar

Gamma Risk

Exposure ⎊ Gamma risk, within cryptocurrency derivatives, represents the sensitivity of an option's delta to changes in the underlying asset's price.

Market Makers

Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.