Definition
Gamma is the options Greek that measures the rate of change in delta for every $1 move in the underlying stock — high gamma means delta shifts rapidly as price moves, making the option increasingly sensitive to further price movement, and it's the primary reason 0DTE options can go from nearly worthless to highly valuable in minutes.
Example
“My call had a delta of 0.40 and a gamma of 0.08. The stock moved up $2 — so delta increased by 0.16 (0.08 × 2) to 0.56. The option now moves more like the stock than it did when I bought it. That acceleration is gamma working in my favor.”
Detailed Explanation
Gamma can be thought of as delta's momentum — it tells you how quickly your option is becoming more or less responsive to the stock's movement. When you buy an option, you have positive gamma: as the stock moves in your direction, your delta increases (the option becomes more valuable per dollar of move), creating an accelerating gain. If the stock moves against you, your delta decreases (the option becomes less sensitive), creating a decelerating loss. This asymmetry is the core mathematical advantage of buying options — your wins accelerate and your losses decelerate, which is why the payout profile is skewed.
Gamma is highest for at-the-money options and options very close to expiration. This is why 0DTE (zero days to expiration) options have such extreme behavior — their gamma is enormous. A small move in the underlying causes a massive delta shift, which means the option's price can double or go to zero in a very short time based on relatively modest price moves in the stock. For 0DTE buyers, this is the appeal; for 0DTE sellers, this is the terror. Gamma risk is what keeps option sellers up at night — a sudden unexpected move can rapidly transform a profitable premium-selling position into a large loss as delta accelerates against them.
The "gamma squeeze" is a market phenomenon driven by gamma dynamics. When a stock with heavy options open interest starts rising, market makers who sold call options must buy shares to hedge their delta exposure. As the stock rises, the delta of those calls increases (due to gamma), requiring market makers to buy even more shares. The forced buying accelerates the stock's rise, which again increases delta and requires more buying — a feedback loop. This is precisely what happened in the 2021 meme stock events: gamma squeezes on top of short squeezes created explosive, self-reinforcing moves. Understanding gamma helps explain why heavily optioned stocks can make moves that seem disproportionate to any fundamental or technical basis.