Options Gamma Risk

Gamma risk measures how quickly an option's delta changes as the underlying asset's price moves, representing the curvature of the option's value. For options sellers, being short gamma is particularly dangerous in high-volatility environments like crypto, as they must continuously adjust their hedges to remain delta neutral.

As the underlying price approaches the strike price, the gamma increases, requiring larger and faster trades to maintain a hedge. If the market moves too quickly, the trader may be unable to hedge effectively, leading to significant losses.

In crypto markets, where price swings are sudden and severe, managing gamma risk is a critical challenge for market makers and liquidity providers. Failure to account for gamma can lead to rapid capital erosion during volatile market events.