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Glossary of Terms and Strategies for Options Trading

Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.

Greeks

Advanced

Gamma

It measures the change in delta depending on the movement of the underlying price.

Detail

Gamma shows how quickly an option's delta changes when the underlying price changes. It expresses the "acceleration" of the option's sensitivity to the underlying. A high gamma means that the delta can change rapidly, increasing both risk and profit potential. Gamma is highest for ATM options with a short time to expiration.

Gamma is the derivative of delta, which means it shows how much delta changes when the underlying price changes by $1. If an option has a high gamma, delta changes rapidly, which affects the value of the option and the need for active hedging. Gamma increases for ATM options as expiration approaches. ITM and OTM strikes moving away from ATM have lower gamma.

Optimal conditions

Gamma is important for traders who actively hedge options positions, such as delta neutral strategies. High gamma can be advantageous for speculating on rapid movements in the underlying.

Max profit

It does not determine directly, it depends on the chosen option strategy.

Max loss

It does not determine directly, it depends on the chosen option strategy.

Risks

High gamma means that delta changes rapidly and the hedge needs to be adjusted more frequently. For option sellers (short options), high gamma increases the risk of large losses in fast-moving markets.

Greeks

It affects the dynamics of the delta. The higher the gamma, the more sensitive the delta.

Variations

Gamma scalping (active position management), high gamma options (close to ATM), low gamma (far from OTM/ITM).

Usage example

Maintaining delta neutrality in the portfolio, hedging during large movements of the underlying. For example, after a large movement of the stock, the hedge needs to be adjusted. Buying ATM options just before earnings to profit from a sharp movement (high gamma).

DTE

Gamma increases as expiration approaches, especially for ATM options.

IV (implied volatility)

Higher IV often means higher premium, but gamma can be high even with low IV if it is close to expiration.

Premium

High gamma options have a higher premium, especially near expiration.

Margin

Listing ATM options with high gamma may imply higher margin due to risk. For example, short ATM call with high gamma.

Notes

Gamma is important for active risk management and delta-neutral strategies. Hedging high-gamma options is more challenging but can yield profits during large market movements.

gamma, delta change, option risk, Greek letters, gamma scalping

Greeks

Advanced

Gamma

It measures the change in delta depending on the movement of the underlying price.

Detail

Optimal conditions

Gamma is important for traders who actively hedge options positions, such as delta neutral strategies. High gamma can be advantageous for speculating on rapid movements in the underlying.

Max profit

It does not determine directly, it depends on the chosen option strategy.

Max loss

It does not determine directly, it depends on the chosen option strategy.

Risks

High gamma means that delta changes rapidly and the hedge needs to be adjusted more frequently. For option sellers (short options), high gamma increases the risk of large losses in fast-moving markets.

Greeks

It affects the dynamics of the delta. The higher the gamma, the more sensitive the delta.

Variations

Gamma scalping (active position management), high gamma options (close to ATM), low gamma (far from OTM/ITM).

Usage example

Maintaining delta neutrality in the portfolio, hedging during large movements of the underlying. For example, after a large movement of the stock, the hedge needs to be adjusted. Buying ATM options just before earnings to profit from a sharp movement (high gamma).

DTE

Gamma increases as expiration approaches, especially for ATM options.

IV (implied volatility)

Higher IV often means higher premium, but gamma can be high even with low IV if it is close to expiration.

Premium

High gamma options have a higher premium, especially near expiration.

Margin

Listing ATM options with high gamma may imply higher margin due to risk. For example, short ATM call with high gamma.

Notes

Gamma is important for active risk management and delta-neutral strategies. Hedging high-gamma options is more challenging but can yield profits during large market movements.

Tags

gamma, delta change, option risk, Greek letters, gamma scalping