Parent term
Gamma is the rate of change in an option's delta per 1-point move in the underlying asset's price. It is an important measure of the convexity of a derivative's value, in relation to the underlying. It is the first derivative of delta and is used when trying to gauge the price movement of an option, relative to the amount it is in or out of the money. A consequence of reducing gamma, however, is that alpha will also be reduced. Gamma is at its highest when an option is at the money and is at its lowest when it is further away from the money.