T2W Bot
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What is gamma?
An option?s price changes with fluctuations in several factors such as spot price, volatility, interest rates and time. Delta is a measure of the change in option premium with respect to a change in the underlying, or spot, price. Gamma represents the change in delta for a given change in the spot rate.
In trading terms, players become long gamma when they buy standard puts or calls, and short gamma when they sell them. When commentators speak of the entire market being long or short gamma, they usually are referring to market-makers in the interbank market.
How market makers view gamma
Let?s consider how market makers view gamma. Generally, options market makers seek to be delta-neutral?that is, they want to hedge their portfolios against movement in the underlying spot rate. The amount by which their delta, or hedge ratio, changes is known as gamma.
Say a trader is long gamma, meaning that she has bought some standard vanilla options. Assume they...
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