What Is “Gamma Risk” for Options Sellers and How Does It Complicate Hedging Strategies during Volatile Periods?

Gamma is the rate of change of an option's delta relative to the underlying asset's price. For options sellers (who are short gamma), this means their delta exposure accelerates rapidly as the underlying price moves against them.

During volatile periods, this forces them to hedge more frequently and in larger sizes to remain delta-neutral. This frantic hedging activity, known as a "gamma squeeze," can itself exacerbate market volatility, as sellers are forced to buy into a rising market or sell into a falling one, creating a feedback loop and complicating risk management.