What Is the Practical Implication of "Gamma Explosion" for Traders? ⎊ Path

What Is the Practical Implication of “Gamma Explosion” for Traders?

Gamma explosion refers to the rapid increase in Gamma for ATM options as expiration approaches. The practical implication is a massive increase in hedging activity and risk.

Traders with short option positions face potentially catastrophic losses if the underlying asset moves sharply, as their Delta changes against them very quickly. It demands immediate and precise re-hedging.

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Glossar

Short Option Positions

Exposure ⎊ Short option positions, within cryptocurrency derivatives, represent an obligation to fulfill the underlying asset’s contract should the option be exercised by the buyer.