Option Gamma in options Greek

  1. Trading for professionals: Options trading
    1. Call Option Basics learn the basic Definition with Examples
    2. Call option and put option understanding types of options
    3. What Is Call Option and How to Use It With Example
    4. Options Terminology The Master List of Options Trading Terminology
    5. Options Terms Key Options Trading Definitions
    6. Buy call option A Beginner’s Guide to Call Buying
    7. How to Calculate Profit on Call Option
    8. Selling Call Option What is Writing/Sell Call Options in Share Market?
    9. Call Option Payoff Exploring the Seller’s Perspective
    10. American vs European Options What is the Difference?
    11. Put Option A Guide for Traders
    12. put option example: Analysis of Bank Nifty and the Bearish Outlook
    13. Put option profit formula: P&L Analysis and Break-Even Point
    14. Put Option Selling strategies and Techniques for Profitable Trading
    15. Call and put option Summary Guide
    16. Option premium Understanding Fluctuations and Profit Potential in Options Trading
    17. Option Contract moneyness What It Is and How It Works
    18. option moneyness Understanding itm and otm
    19. option delta in option trading strategies
    20. delta in call and put Option Trading Strategies
    21. Option Greeks Delta vs spot price
    22. Delta Acceleration in option trading strategies
    23. Secrets of Option Greeks Delta in option trading strategies
    24. Delta as a Probability Tool: Assessing Option Profitability
    25. Gamma in option trading What Is Gamma in Investing and How Is It Used
    26. Derivatives: Exploring Delta and Gamma in Options Trading
    27. Option Gamma in options Greek
    28. Managing Risk in Options Trading: Exploring Delta, Gamma, and Position Sizing
    29. Understanding Gamma in Options Trading: Reactivity to Underlying Shifts and Strike Prices
    30. Mastering Option Greeks
    31. Time decay in options: Observing the Effect of Theta
    32. Put Option Selling: Strategies and Techniques for Profitable Trading
    33. How To Calculate Volatility on Excel
    34. Normal distribution in share market
    35. Volatility for practical trading applications
    36. Types of Volatility
    37. Vega in Option Greeks: The 4th Factors to Measure Risk
    38. Options Trading Greek Interactions
    39. Mastering Options Trading with the Greek Calculator
    40. Call and Put Option Guide
    41. Option Trading Strategies with example
    42. Physical Settlement in Option Trading
    43. Mark to Market (MTM) and Profit/Loss Calculation
Marketopedia / Trading for professionals: Options trading / Option Gamma in options Greek

The Curvature

It is evident that the Delta of an option fluctuates in accordance with changes in the underlying.

Examining the blue line which shows the delta of a call option, it is evident that it oscillates between 0 and 1 or inversely from 1 to 0 depending on the situation. The red line representing the delta of a put option displays similar behavior, albeit its value alters between 0 and -1. It is clear from this graph that the delta is ever-changing. 


Therefore, one should be prepared to answer the following query:

I’m aware of the alteration in delta, but why should I be concerned by it?

If the variance of delta is significant, what are the chances of predicting its alteration?


Let’s focus on the second query first; I’m sure the response to the initial one will become apparent as we go through this section.

The Gamma provides the rate at which the delta will shift based on movements in the underlying security. 


This rate is often shown in deltas either gained or lost per a one-point move in the underlying – showing an increase in delta by gamma sum when rising, and a decrease by this same amount when falling.


For example, consider this –

Nifty Spot = 8500

Strike = 8600

Option type = CE

Moneyness of Option = Slightly OTM

Premium = Rs.30/-

Delta = 0.4

Gamma = 0.003

Change in Spot = 80 points

New Spot price = 8500 + 80 = 8580

New Premium =??

New Delta =??

New moneyness =??


Let’s figure this out –

Change in Premium = Delta * change in spot  i.e  0.4 * 80 = 32

New premium = 32 + 30 = 62

Rate of change of delta = 0.003 units for every 1-point change in underlying

Change in delta = Gamma * Change in underlying i.e 0.003*80 = 0.24

New Delta = Old Delta + Change in Delta i.e 0.4 + 0.24 = 0.64


New Moneyness = ATM

When Nifty shifted from 8500 to 8580, the 8600 CE premium rose from Rs.30 to Rs.62, while its Delta went up from 0.4 to 0.64.

The transition from slightly OTM to ATM option is marked by an increase of 80 points, and the delta consequently shifts from 0.4 to near 0.64. It is clearly depicted in the present scenario. 


Let us consider the scenario that Nifty rises by 80 points from 8580. Then, what will be the situation with the 8600 CE option?

Old spot = 8580

New spot value = 8580 + 80 = 8660

Old Premium = 62

Old Delta = 0.64

Change in Premium = 0.64 * 80 = 51.2

New Premium = 62 + 51.2 = 113.2

New moneyness = ITM 

Therefore, the delta should be higher than 0.5

Change in delta =0.003 * 80 = 0.24

New Delta = 0.64 + 0.24 = 0.88

Proceeding on, if the Nifty drops by 60 points, let’s have a closer look at how 8600 CE performs.

Old spot = 8660

New spot value = 8660 –


60 = 8600

Old Premium = 113.2

Old Delta = 0.88

Change in Premium = 0.88 *(60) = – 52.8

New Premium = 113.2 – 52.8 = 60.4 

New moneyness = slightly ITM (hence delta should be higher than 0.5)

Change in delta = 0.003 * (60) = – 0.18

New Delta = 0.88 – 0.18 = 0.7


Take a look at the delta transition and how it adheres to the earlier chapters’ rules. You may be wondering why Gamma stays constant here; indeed, it changes with changes in the underlying. This variation is referred to as “speed”, “Gamma of Gamma”, or “DgammaDspot” – all derivatives of underlying. Unless you’re mathematically inclined or working in investment banking, wherein risks can run up to millions of dollars, discussion of speed is unnecessary.


When a trader has a long position in both Call and Put Option, they are referred to as Long Gamma. On the other hand, should they have a short position on those same options, they would be ‘Short Gamma’.


For instance, let’s say the Gamma of an ATM Put option is 0.005 – if the underlying shifts 15 points, what would you calculate the new Delta as?

I would highly recommend you to spend some time thinking about a potential solution for the issue at hand.


If the ATM Put option we are considering has a Delta of – 0.6, then its Gamma is +0.005; when the underlying moves by 15 points, we will need to evaluate what occurs in both possible directions.

Case 1 – Underlying moves up by 15 points


Delta = – 0.6

Gamma = 0.005

Change in underlying = 15 points

Change in Delta = Gamma * Change in underlying = 0.005 * 15 = 0.075

New Delta = We know the Put option loses delta when the underlying increases, hence – 0.6 + 0.075 = – 0.525

Case 2 – Underlying goes down by 15 points


Delta = – 0.6

Gamma = 0.005

Change in underlying = – 15 points

Change in Delta = Gamma * Change in underlying = 0.005 * – 15 = – 0.075

New Delta = We know the Put option gains delta when the underlying goes down, hence – 0.6 + (-0.075) = – 0.675

So, here’s something to think about – Earlier, we mentioned that the Delta of a Futures agreement is typically 1.


    Get the App Now