Why Risk and Reward Explode Near the Money
You’ve heard of Delta — the directional exposure of an option.
But what makes Delta change?
Gamma.
Gamma is the rate of change of Delta. It’s the accelerator — the reason options can go from slow movers to rocket ships near expiry or around key price levels.
⚙️ What is Gamma?
Gamma tells you how fast your Delta will increase (or decrease) as price moves.
If Gamma = 0.10, then if the underlying asset moves $1, your Delta will increase by 0.10.
High Gamma = big changes in exposure, fast.
Gamma is highest when:
The option is at the money
There is very little time left to expiry
🎢 How Gamma Drives Explosive Moves
Near expiry:
Delta can go from 0.20 to 0.80 rapidly
This makes your position go from slow to hyper-responsive
Example:
You buy a NAS100 21800C with Delta = 0.40, Gamma = 0.15
NAS100 jumps $1 → Delta becomes 0.55
Another $1 move → Delta becomes 0.70
Now your option acts more like the index — profits come faster.
đź’Ł Gamma Squeeze: When Dealers Chase
Here’s where it gets serious.
When many traders buy short-dated call options, dealers who sold them must hedge by buying the underlying.
As Gamma increases, they must buy more and more to stay neutral.
This creates a feedback loop where price explodes upward — a Gamma Squeeze.
We’ve seen it before: GME, TSLA, NVDA, even SPX in OPEX weeks.
đź’Ľ How Traders Use Gamma
âś… Scalpers + Momentum Traders
Love high Gamma near expiry
Use it for fast, responsive setups
Focus on “at the money” options during news
⚠️ Risk Managers
Gamma increases exposure risk
Must adjust Delta hedging frequently
Especially dangerous for sellers of naked options
🧠Titan Summary:
| 🧠Greek | What It Means | Who Uses It |
|---|---|---|
| Gamma | Rate of change of Delta | Scalpers, risk managers, squeeze watchers |
🧱 Key Takeaways:
Gamma = Delta’s speed — it shows how fast your exposure is changing
Highest near ATM and expiry
Watch Gamma squeezes near OPEX and crowded strike levels
Manage risk tightly when Gamma is elevated
📌 Coming Next: Rho – The Rate Effect
Understand how interest rate changes affect long-dated options and macro hedging strategies.
