Most traders focus on delta — how an option moves relative to the underlying stock. But gamma is just as important, especially when volatility kicks in.
Understanding whether you’re trading with negative or positive gamma can mean the difference between riding the market’s momentum…
Or getting steamrolled by it.
Why Gamma Matters
Gamma measures how fast delta changes. Positive gamma means your position benefits when the stock moves in your favor, accelerating your profits. Negative gamma does the opposite — forcing you to constantly adjust to keep up.
Market makers, who often trade with negative gamma, hedge their positions by buying high and selling low. That creates exaggerated price swings, especially in volatile environments. If you’ve ever wondered why stocks make sudden, seemingly irrational moves, this is a big part of the reason.
How to Use Gamma to Your Advantage
If you’re long options — especially near expiration — you’re in a positive gamma trade. That means your gains can snowball if the stock moves quickly in the right direction. But if the stock stalls, time decay eats away at your position.
On the flip side, traders who sell options have negative gamma exposure. Their profits come from time decay, but they’re vulnerable to sharp moves.
That’s why market makers are forced to chase prices when volatility spikes.
So what’s the takeaway?
If you’re trading options, know your gamma exposure. When volatility is low, selling options can generate steady income. But when the market starts moving fast, negative gamma can turn small losses into big ones — fast.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. The Market Chop Isn’t Ending Anytime Soon…
I’ve singled out a group of stocks that could hit certain strike prices soon…
And I’ll be in the LIVE room at 1 p.m. today, March 20, to share it with you — at no cost!
