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Gamma
Gamma is a measure of the change in delta for a change in the underlying stock price. It measures the proportion of change in the delta vis-à-vis the change in stock price or index.
| Call option |
|
|
Change |
| Spot price |
1,070 |
1,071 |
1 |
| Exercise price |
1,080 |
1,080 |
0 |
| Interest |
10% |
10% |
0 |
| Volatility |
25% |
25% |
0 |
| Time(days to expiry) |
11 |
11 |
0 |
| Delta |
0.4520 |
0.4605 |
00.0085 |
| Gamma |
0.008509 |
0.008521 |
|
| Option price |
15.5275 |
15.9761 |
0.4487 |
As shown in the example with every 1-point change in the index at 1,070.1 the delta is Rs 0.45. However, this Rs 0.45 will change by Rs 0.0085, with every incremental change in the index by one point.
Gamma is the same for calls and puts.
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