How Does a Sudden Drop in Implied Volatility Affect the Gamma of a 0DTE Option?
A sudden drop in implied volatility (IV) will decrease the Gamma of a 0DTE option. Gamma is highest when the option is ATM and IV is high.
A drop in IV reduces the probability of the option expiring ITM, which lessens the steepness of the Delta curve near the strike. This reduction in the rate of Delta change translates directly to a decrease in Gamma.
