# Gamma

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Gamma is the first derivative of delta and the second derivative of an option’s price with respect to the underlying assets price. It is used to assess the price movement of an option relative to the difference from the strike price. Gamma is small when the option is far, either positively or negatively, from the strike price. Gamma is large when the option is near the strike price.

Long position options have a positive gamma because the anticipated price movement is positive. Short position options have a negative gamma because the anticipated price movement is negative. Traders utilize a delta hedge strategy to reduce gamma and maintain a hedge over a specified price range. Because reducing gamma often requires offsetting long and short positions, overall portfolio alpha is reduced when gamma is reduced.