Gamma

Gamma is a measure of how fast an option's directional exposure changes as the underlying stock moves. To understand it, you first need delta: delta tells you roughly how much an option's price will move for a $1 move in the stock, and it also acts as a stand-in for how many shares of stock the option currently behaves like. Gamma tells you how much that delta itself will shift for every $1 the stock moves.

Think of delta as speed and gamma as acceleration. An option with a small delta and high gamma can turn into a much bigger directional bet very quickly if the stock moves in its favor, because delta is climbing fast. An option with low gamma has a delta that stays fairly stable even as the stock moves, so its behavior is more predictable in the short term.

Gamma is highest for options that are at-the-money (strike price close to the current stock price) and are close to expiration. It shrinks for options that are deep in-the-money or deep out-of-the-money, and it's generally lower for options with more time left until expiration. This is why short-dated, near-the-money options are described as having "explosive" gamma — small stock moves can cause outsized swings in the option's delta and price.

The nuance that trips people up: gamma itself isn't a profit or loss number, it's a rate. It matters most to people who are managing a position's delta over time, especially option sellers, because a high-gamma position can require constant adjustment (buying or selling shares to stay "delta neutral") as the stock moves. For a simple buyer of a call or put, gamma mostly shows up as convexity — gains accelerating and losses decelerating as the stock moves in the right direction.