What Does a High Gamma Reading Imply for an Option Trader’s Position?
A high Gamma implies that the option's Delta will change rapidly in response to small movements in the underlying asset's price. Gamma is highest for options that are at-the-money and close to expiration.
A trader with a long Gamma position (e.g. long calls or puts) benefits from high Gamma because it means their Delta-hedged position will require less frequent rebalancing and will profit from high volatility. A short Gamma position is highly vulnerable to sudden price swings.
Glossar
High Gamma
Sensitivity ⎊ This condition describes an option whose Delta exhibits a large second-order sensitivity to changes in the underlying crypto asset price.
Long Gamma Position
Mechanism ⎊ A long gamma position in cryptocurrency options denotes a strategy profiting from substantial price movements, either upward or downward, while being sensitive to changes in implied volatility.
Short Gamma Position
Exposure ⎊ A short gamma position in cryptocurrency options denotes a portfolio construction where an options dealer or trader has a negative gamma risk profile, typically achieved by selling options or creating a short straddle or strangle.