Definition
Gamma is the sensitivity of an option's delta to a one-unit change in the price of the underlying asset, or equivalently the second derivative of option price with respect to underlying. Gamma is highest for at-the-money options near expiration and represents the convexity that makes options behavior nonlinear. Firms running options market making or gamma-scalping strategies manage gamma exposure as tightly as delta, because gamma drives how quickly delta hedges need rebalancing as the underlying moves.
Example
A market maker runs a gamma-scalping strategy on BTC options. As BTC rises, the portfolio's delta rises (positive gamma), forcing the market maker to sell spot BTC to remain delta-neutral. The profit from gamma scalping is the difference between rebalancing costs and the option's time decay.
How Liquid Mercury Handles This
Mercury Pro's portfolio risk tracking includes gamma exposure alongside delta, with real-time rebalancing triggers integrated into the execution algorithms and OMS risk surfaces.