Gamma is the rate of change of delta measured against the rate of change in the underlying asset.
In simple terms, gamma is the speed of delta, or the “speed of speed.” The speed of speed is commonly known as acceleration.
Gamma is significant because it helps the trader measure risk, particularly for Delta Neutral traders. Gamma effectively shows us how quickly the odds are changing of the option expiring In the Money. By knowing the gamma of an option, we know how quickly the delta will change and how quickly we should adjust our position in advance of this.
Summary of how gamma behaves:
|ATM||Gamma tends to be high when the option is ...|