What Is Gamma?
Gamma measures how quickly an option's Delta changes as the underlying asset moves. It represents the second derivative of the option's price — if Delta is speed, Gamma is acceleration. ATM options have the highest Gamma, meaning their directional exposure changes most rapidly with small price moves.
How Gamma Works
High Gamma is a double-edged sword. Option buyers benefit from Gamma: as the underlying moves in their favor, Delta increases, accelerating gains. Option sellers are hurt by Gamma: as the underlying moves against them, Delta increases, accelerating losses. This "Gamma risk" is why selling ATM options near expiration is dangerous — Gamma peaks as expiration approaches.
Why It Matters for Traders
In crypto options, Gamma exposure is significant because large moves are common. Market makers track aggregate Gamma exposure across all open options positions. When "Gamma exposure" is highly negative (many sold ATM options), market makers must buy as price rises and sell as price falls, amplifying moves. Positive Gamma exposure does the opposite, dampening volatility.
