Thread by @compudex

A simplified thread about #Gamma : Delta is change in option price with change in stock/nf/BN, but Delta doesn't remain constant, so how much delta will be changed, is measured by Gamma. Confusing?
#Gamma measures risk of movement, for e.g #tcs is trading at 2000rs,

1/n

2/n, 2100CE has 0.4 #delta and #Gamma 0.001

TCS moving +100rs can change delta as below (100rs x 0.001)+0.4 = 0.5 new delta for 2100CE when TCS reached at 2100, which is ATM

(Price Change x Gamma) + old delta = New delta.

Gamma is +ve for Long CE/PE and -ve for Short CE/PE

3/n, ATM has highest Gamma, as ATM changes delta quickly either to bring option in the money or out of the money. The sensitivity is highest at ATM. With less time, it's more sensitive to price.

Attached graph taken from google.

4/n, Read attached note for e.g, Delta is Probability of that strike to be ITM at expiry.

Closer to Expiry has Higher Gamma. Low IV has high Gamma. ATM has high Gamma.

5/5, Combined all is good for buyer, for e.g BN or NF on expiry day after 1.30pm with non-event day, low IV is worst for option writer, best for buyers. Buyers Payless and gain more if there is huge movement. Writer risks more if Gamma is high, That's called Gamma risk for writer

https://twitter.com/compudex/status/1120657533276971010?s=19

Gamma vs IV