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Binary Options: Fixed Odds Financial Bets by Hamish Raw

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5. Gamma & Delta

5.0 Introduction

Gamma is a ratio that measures how much the delta will change owing to a change in the underlying.

The gamma is the measure most commonly used by marketmakers or ‘structural’ traders when referring to portfolios of options. The gamma indicates how much the delta of an option or portfolio of options will change over a one-point move.

Marketmakers will generally try to hold books that are neutral to movements in the underlying, but will more often than not be a long or a short gamma player. The long or short gamma indicates the position’s exposure to swings in the delta and therefore subsequent exposure to the underlying. Gamma provides a very quick, one glance assessment of the position with respect to ...

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