Gamma Glossary: Key Terms Every Options Trader Should Know
Mastering gamma starts with the vocabulary. Here are the key terms you need to know.
Gamma
Gamma — The rate of change of delta with respect to the underlying price. It measures how quickly your delta changes as the market moves. High gamma means delta is sensitive; small moves create large delta changes.
Gamma Density
Gamma Density — The concentration of gamma exposure at specific price levels. It shows where option writers have concentrated their positions. High gamma density at a strike means significant hedging activity when price approaches that level.
Gamma Exposure
Gamma Exposure (GEX) — The total gamma risk from all options positions, typically aggregated by price level. It quantifies how much dealers will need to buy or sell if the market moves. Negative GEX means dealers are short gamma (hedging amplifies moves); positive GEX means they’re long gamma (hedging dampens moves).
Gamma Zero
Gamma Zero — The price level where gamma exposure flips from positive to negative (or vice versa). It’s the market’s balance point — the fulcrum around which hedging behaviour pivots.
Long Gamma
Long Gamma — A position that benefits from increased volatility and movement. Your delta increases when the market moves in your favour and decreases when it moves against you. Long options are long gamma.
Short Gamma
Short Gamma — A position that suffers from increased volatility. Your delta moves against you when the market moves. Short options and many market maker positions are short gamma.
Delta Neutral
Delta Neutral — A portfolio with zero net delta. You’re indifferent to small directional moves. Achieved by hedging options with the underlying or futures.
Gamma Neutral
Gamma Neutral — A portfolio with zero net gamma. Your delta stays relatively stable as the underlying moves. Achieved by offsetting short gamma with long gamma (e.g., buying options to hedge short vol positions).
Spectrum Chart
Spectrum Chart — A visualisation that tracks gamma exposure (and related metrics) across price levels. Used to identify gamma zero and the distribution of option writer positioning.
Bookmark this glossary and refer back as you explore gamma density, gamma exposure, and the tools that bring these concepts to life on the chart.
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