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

Gamma is one of the 'Greeks' that measures the rate of change of an option's delta. It is the second derivative of the option price with respect to the underlying price.

A high-gamma position means that the option's delta will change rapidly with small movements in the underlying asset's price. This makes the position highly sensitive and requires frequent re-hedging to maintain a delta-neutral status, increasing transaction costs.