Options traders talk in Greek letters, and gamma is the one that has escaped into everyday market commentary. You will hear phrases like gamma squeeze or dealers are short gamma used to explain sudden lurches in share prices. The idea behind them is more accessible than it sounds.
Start with delta
To understand gamma you first need delta. An option’s delta measures how much its price is expected to change for a small move in the underlying asset. A call option with a delta of 0.5 should gain about 50 pence for every £1 rise in the share price. Delta ranges from 0 to 1 for calls and from 0 to minus 1 for puts.
What gamma measures
Gamma measures how quickly delta changes as the underlying price moves. If an option has high gamma, its delta can swing rapidly, so the option becomes much more or much less sensitive to the share price very quickly. Gamma is highest for options whose strike price is close to the current market price and that are near expiry.
For an individual trader, high gamma means an option’s value can change dramatically with small moves in the underlying. That can be exciting when you are right and painful when you are wrong.
Why dealers’ gamma moves markets
The bigger story is about the market makers and banks, often called dealers, who sell options to investors. Dealers usually try to stay neutral to price moves by hedging, buying or selling the underlying shares or futures as delta changes. Gamma tells them how much hedging they need to do.
When dealers are long gamma, their hedging tends to calm markets. As prices rise they sell, and as prices fall they buy, which dampens swings. When dealers are short gamma, the opposite happens. To stay hedged they must buy as prices rise and sell as prices fall, which can accelerate moves in both directions.
The gamma squeeze
A gamma squeeze happens when heavy buying of call options forces dealers who sold those calls to buy the underlying shares to hedge. Their buying pushes the price up, which increases the delta of the calls, forcing even more buying. It became famous during the meme stock frenzies, but it also occurs in large stocks and indices.
Large concentrations of options at particular strike prices, sometimes called put walls or call walls, can also act like magnets or barriers for prices around expiry dates. In October 2026, for example, traders pointed to a large cluster of put options near a key level on a major S&P 500 ETF as a possible support zone.
How traders use the concept
Some traders follow estimates of dealer gamma positioning published by specialist data firms to judge whether markets are likely to be calm or volatile. Others simply watch for big option expiry dates, particularly the monthly expiry on the third Friday, when gamma effects can be strongest.
The limits
Dealer positioning is estimated, not reported, so different data providers can reach different conclusions. Gamma is one influence among many, and fundamental news can easily overwhelm it.
The bottom line
Gamma measures how fast an option’s sensitivity changes, and dealer hedging linked to gamma can either calm markets or turbo-charge their moves. Understanding it helps explain sudden swings that seem to have no obvious news behind them. If you want to see how well you understand the forces behind price moves, take the free Samuel & Co Trading Trader Assessment.
