Thread by @PowerTradeHQ

1/ PowerTrade #GreekWeek Day 2 - GAMMA

I’m sure you have heard it mentioned all over twitter, and it might seem a bit confusing, but in this #PowerKnowledge thread we are going to demystify Gamma and explain it in simplest of terms.

Gamma NFT Drop at the end...

2/ Gamma is the rate of change in Delta. If you don't remember Delta, here is our thread from yesterday explaining it.

TLDR: Delta measures change in the option price for every one dollar move, and gamma measures the change in Delta.

https://twitter.com/PowerTradeHQ/status/1435237755500519429

3/ So Gamma is actually what's called a second order derivative, because it doesn't measure the change in the Options value, it measure the change in the thing that measure the change of the options value ie. Delta.

4/ That was kind of confusing, but lets just do some simple math and all will become clear. Lets say you bought a call and these are its stats…

ETH: $100
Call Price: $50
Delta: .25
Gamma: .05

5/ What would happen if #ETH increased in price by $1? We would simply add the delta to the call price, and then we would add the gamma to the delta giving us a new delta of .30.

ETH: $101
Call Price: $50.25
Delta .30
Gamma: .05 (For example sake this did not change)

6/ You can probably figure out what happens if #ETH drops by a dollar.

ETH: $99
Call Price: $49.75
Delta: .20
Gamma: .05

Of course in real life it wont work out so perfectly, because there are other factors influencing price. But this is the idea. Its really as simple as that.

7/ Last thing, if you are short a put or a call you will have negative gamma. Let's say I’m short a call, my stats might look like this.

ETH: $100
Call Price: $50
Delta: -.25
Gamma: -.05

8/ Here is a real world example of the #ETH Option ladder. You can see each strikes respective Gamma as you hover over the Delta.

9/ Side note, if you are on our mobile version you can still check the Greeks. (Just tap on bid/ask on the order screen.)

10/ With neg gamma, if price were to increase to $101 dollars. We would simply need to add the delta to the call price then add the gamma to the delta. This would leave us with a gamma of -.30.

$50 + -.25 = $49.75 Call Price
-.25 + -.05 = -.30 New Delta

11/ Well done! You've now learned about Gamma!

If you are a $PTF holder, go claim your Gamma NFT drop!

⚡️👇

galaxy.eco/powertrade/cam…

Tomorrow we are going to talk about Theta and why it's important.

12/ Comment below if you have more to add or any questions!
@AltcoinPsycho @thetaseek @ResearchVariant @tedtalksmacro @PelionCap @ConvexMonster
@GenesisVol @laevitas1 @OrthoTrading
@_Dave__White_ @ledger_prime @cmsholdings
@tradeparadigm @scottmelker

13/ Check out Gamma in the options chain yourself!

Download PowerTrade
go.power.trade/download

https://twitter.com/PowerTradeHQ/status/1434935141026074624