Gamma on Gate

Definition and Significance of Gamma

Gamma is the derivative of Delta with respect to the price of the underlying asset. In other words, it measures how sensitive an option’s Delta is to changes in the underlying price.

That is, when the price of the underlying asset changes by 1 USDT, Gamma indicates how much the option’s Delta will change.

What Gamma Means on Gate
On the Gate platform, Gamma represents the change in the option’s Delta for every 1 USDT movement in the underlying asset.

Key Characteristics and Importance of Gamma
Gamma is the only second-order Greek introduced in this section.
It is considered a second-order measure because it doesn’t directly reflect the sensitivity of the option price to a parameter, but rather shows how a first-order Greek (Delta) responds to changes in that parameter.

• Gamma is typically positive for both Call and Put options.
• When the underlying price increases:
  • Call options may become more in-the-money, increasing Delta.
  • Put options is more out-of-the-money, Delta decreases more slowly or flattens out towards zero.
  • In both cases, Delta moves in a positive direction, resulting in positive Gamma.

Example:

Example:
If an option has a Gamma of 0.01 and a current Delta of 0.40, then after the underlying asset price rises by 1 USDT, the new Delta will be approximately 0.41.

Summary
Gamma is a crucial tool in risk management, especially in dynamic hedging strategies like Delta-neutral approaches. It helps predict future changes in Delta, allowing traders to adjust their positions in advance and optimize hedge effectiveness.
Mastering Gamma on top of Delta enables traders to better understand the dynamic behavior of option prices.

Theta on Gate

Theta: A Measure of Time Decay

Theta quantifies the impact of “time decay” on option prices. It represents the amount an option is expected to lose in value over the next 24 hours, assuming all other factors (market price, volatility, other Greeks) remain constant.

Impact of Theta on Buyers and Sellers:

• For option buyers (both Call and Put):
  Theta is usually negative because time decay reduces the option’s extrinsic value, which is unfavorable to the buyer.

• For option sellers:
  Theta is positive, as time decay reduces the value of the options they sold, allowing them to potentially buy them back at a lower price for a profit.

Example:

Note: Theta is not constant — it accelerates as the option nears expiration, with the rate of decay becoming significantly faster during the last 30 days. This means an option’s time value doesn’t decline linearly but instead follows an accelerated depreciation curve.

Key takeaway:
Theta measures the “cost of time” — the closer to expiration, the faster the decay. It works against buyers and in favor of sellers.

Vega on Gate

Vega: A Measure of Sensitivity to Implied Volatility

Vega indicates how much the price of an option is expected to change when the implied volatility (IV) shifts by 1 percentage point. It reflects how sensitive the option is to changes in market sentiment and expectations of future volatility.

Characteristics of Vega:

• Vega is positive for both Call and Put options.
  When all other conditions remain constant, an increase in implied volatility raises the price of both Calls and Puts.
• Vega is typically the highest for at-the-money (ATM) options and decreases as options become more in-the-money or out-of-the-money.

Example: