What Is ‘Gamma Risk’ and How Is It Managed?
Gamma risk is the risk associated with the rate of change of an option's Delta. Gamma is highest for at-the-money options and near expiration.
High Gamma means Delta changes rapidly as the underlying price moves, requiring frequent and costly adjustments to maintain a Delta-neutral hedge. It is managed by either avoiding high-gamma positions or by trading options to offset the Gamma exposure, often by selling or buying options with opposite Gamma signs.
Glossar
Delta Changes
Sensitivity ⎊ Delta Changes represent the rate at which the price of an option contract or a derivative position adjusts in response to a one-unit move in the underlying asset price.
Costly Adjustments
Consequence ⎊ Costly Adjustments in financial operations refer to necessary actions taken to correct imbalances or exposures that incur significant, often unexpected, transaction costs or market impact.
Gamma Risk
Exposure ⎊ Gamma risk, within cryptocurrency derivatives, represents the sensitivity of an option's delta to changes in the underlying asset's price.