How Is Gamma Used to Manage the Risk of a Changing Delta?
Gamma measures the rate of change of an option's Delta with respect to a change in the underlying asset's price. It is the second derivative of the option price.
High Gamma means Delta is highly sensitive to price changes, indicating a higher risk. Traders use Gamma to anticipate and manage the volatility of their Delta-neutral hedges, as it shows how often they will need to rebalance.
