What Is “Gamma Risk” and How Does It Relate to Delta Hedging during High Volatility?
Gamma measures the rate of change of Delta. Gamma risk is the exposure to large, sudden changes in Delta, especially for At-The-Money options near expiration.
During high volatility, high Gamma means a small price move causes a large Delta change, forcing market makers to rapidly adjust their delta hedge by buying or selling the underlying, which accelerates the price movement.
Glossar
Delta Hedging
Framework ⎊ Delta hedging, within cryptocurrency derivatives, represents a dynamic risk management strategy designed to neutralize the directional exposure arising from options positions.
High Gamma
Sensitivity ⎊ This condition describes an option whose Delta exhibits a large second-order sensitivity to changes in the underlying crypto asset price.
Gamma Risk
Exposure ⎊ Gamma risk, within cryptocurrency derivatives, represents the sensitivity of an option's delta to changes in the underlying asset's price.