What Is the Theoretical Maximum Gamma for a Standard Option? ⎊ Path

What Is the Theoretical Maximum Gamma for a Standard Option?

The theoretical maximum Gamma for a standard option does not have a fixed numerical limit like Delta (which is capped at 1). Gamma can theoretically approach infinity, especially for an At-the-Money (ATM) option as the time to expiration approaches zero.

As expiration nears, the option's Delta can change from near 0 to near 1 (or 0 to -1) with an extremely small move in the underlying price, causing Gamma to spike dramatically. This is why trading very short-dated ATM options is extremely risky.

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Glossar

Theoretical Maximum Gamma

Exposure ⎊ The theoretical maximum gamma, within cryptocurrency derivatives, represents the peak sensitivity of an option's delta to changes in the underlying asset's price.

Theoretical Maximum

Potential ⎊ The theoretical maximum, within cryptocurrency derivatives, represents an idealized price or return achievable under perfectly efficient market conditions and complete information ⎊ a benchmark rarely, if ever, attained in practice.