How is gamma measure the rehedged position
How is gamma measure the rehedged position?
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Gamma: The gamma,Γ, of an option or a portfolio of options is the second derivative of the position with respect to the underlying:
Γ= ∂2V/∂S2.
As gamma is the sensitivity of the delta to the underlying, this is a measure of by how much or how frequently a position should be rehedged in order to keep a delta-neutral position. When there are costs associated along with selling or buying stock, the bid–offer spread, for illustration, then the larger the gamma the larger the friction or cost caused thorugh dynamic hedging.
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