Dealer Hedging Dynamics - Gamma

Dealer Hedging Dynamics | Second Order Derivatives: Gamma

SECOND ORDER DERIVATIVES tell us about how FIRST ORDER DERIVATIVES change.

Critically- we want to know how DELTA changes- because it's the *hedging of delta* which impacts the market itself.

Here, GAMMA is king. GAMMA is the derivative which tells us how DELTA changes when the UNDERLYING changes.

The question: "When the market moves UP, how many futures will dealers have to SELL?" - is answered by GAMMA.

‍