Gaussian measure

How can we predict stock movements?

Imagine you're tracking the price of a stock that fluctuates daily. You want to know how sensitive the stock's price is to changes in the market.

Think of gamma as a way to measure how much the stock's price will change for a small increase in market value. It's like a sensitivity dial for the stock's price to market movements.

Example

If the stock's price is expected to increase by 1%, gamma tells us how much the option's delta will change in response to this price increase.

Remember this

Gamma helps investors understand the risk associated with small price movements in the underlying asset.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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Educational content, not financial advice.

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