What Is the Role of Gamma Hedging in Managing the Risk of a Quoted Options Book?
Gamma is a "Greek" that measures the rate of change of an option's Delta relative to the underlying asset's price. High gamma exposure means the portfolio's delta changes rapidly with price movement, requiring frequent and precise re-hedging.
Gamma hedging involves executing trades in the underlying asset to keep the portfolio's delta neutral, thus minimizing the risk from large, sudden price moves.
Glossar
Options Quoting
Function ⎊ Options quoting is the continuous, automated process of disseminating executable two-sided prices ⎊ bids and asks ⎊ for a range of derivative contracts on an exchange or via an over-the-counter channel.
Gamma Hedging
Objective ⎊ Gamma hedging aims to neutralize a portfolio's gamma exposure, making its delta less sensitive to changes in the underlying asset's price.
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.