Definition
Gamma is one of the option Greeks — the sensitivities that describe how an option's price responds to changing conditions. Specifically, gamma measures how fast delta itself changes when the underlying asset moves by one unit.
If delta tells you how much an option's value shifts for a small price move, gamma tells you how that responsiveness will accelerate or decelerate as the move continues. It is, in effect, the curvature of the option's price.
Why it matters
How it works
Gamma is highest for options that are at the money, because that is where delta is most uncertain — a small price move can swing the option between behaving like the underlying and behaving like nothing at all. Deep in-the-money and deep out-of-the-money options have low gamma, since their delta is already near its limits.
As expiration approaches, gamma for at-the-money options spikes. This is why short-dated positions can change character abruptly: a quiet trade can become highly directional within hours. A holder of long options enjoys positive gamma, gaining responsiveness as the market moves in their favor. A writer carries negative gamma, meaning losses can accelerate against them, which is why short gamma positions demand active management.