What is gamma in options trading?

Gamma measures how much delta changes when the stock moves $1. It is the acceleration force. For buyers, gamma is beneficial — gains speed up and losses slow down. For sellers, gamma is a risk because losses accelerate during big moves.

What is vega in options trading?

Vega measures how much an option's price changes when implied volatility moves by 1%. High vega means the option is sensitive to volatility changes. IV crush after earnings can cause options to lose value even when the stock moves in your favor.

Gamma and Vega Explained — Acceleration and Volatility in Options

Last time: Theta — your option loses value every day just from time passing. Buyers fight it, sellers use it. Now: the final two forces.

You are rolling a snowball down a hill. At the top, you give it a push. It moves slowly. But as it rolls, it picks up snow, gets bigger, moves faster. By the bottom, your neighbor's kid is screaming and a parked car is in danger.

You barely pushed it. Gravity and momentum did the rest.

That acceleration is gamma. Delta was the speedometer. Gamma is what makes the speed change.

And once you understand that, there is one more force: the weather. Vega is the weather. It can change the entire landscape of your trade without the stock moving a single dollar.

Two forces. One lesson. End of the trilogy.

Gamma: The Accelerator

Gamma measures how much delta changes when the stock moves $1.

Our tracking trade: delta 0.35, gamma 0.04. Apple goes up $1, delta climbs from 0.35 to 0.39. Another dollar, delta climbs to 0.43. Another, up to 0.47.

Every dollar Apple moves in your direction, the option responds more. Gains accelerate. The snowball gets bigger.

Flip it. Apple drops $1. Delta falls from 0.35 to 0.31. Another dollar, delta drops to 0.27. Losses slow down.

For buyers: gamma is a friend. Gains speed up, losses slow down. For sellers: gamma is the enemy. Losses accelerate during big moves.

Gamma near expiration is the snowball at the bottom of the hill. If you are the parked car, it is not fun. This is why many sellers close before the final week.

Vega: The Weather

Vega measures how much the option's price changes when implied volatility moves by 1%.

Our tracking trade has a vega of $0.08. If implied volatility rises 1 point, the option gains $0.08 per share ($8 per contract). If IV drops 1 point, the option loses $8.

Think of implied volatility as the market's weather forecast. It measures how big of a move the market expects. When uncertainty is high, IV is high, options are expensive. When things are calm, IV is low, options are cheap. Full details in the IV lesson coming up.

The Trade That Explained Everything

A friend of mine bought Apple calls the day before earnings. Stock went up $4 the next morning. He checked his account expecting a celebration. The option was down 8%. IV had dropped from 45% to 28% overnight. With a vega of $0.08, that is a loss of $1.36 per share from vega alone. His delta gain from the $4 move was about $1.40. So delta gave him $140, vega took $136, theta took another $4. Net: essentially zero. He called me and said, "The stock went up and I lost money. How is that even possible?" I said, "Welcome to vega." He still brings it up at dinner.

Buyers and Sellers on Volatility

In the premium lesson, we said volatility is one of the five forces. Vega is how we measure it.

Buyers want IV to rise. If you buy an option and IV increases, vega adds value even if the stock has not moved.

Sellers want IV to fall. If you sell an option and IV drops, the option becomes cheaper. You buy it back for less. Profit.

The Greeks Summary

Delta: Direction. How much the option moves per $1 stock move.

Theta: Time. How much the option loses per day.

Gamma: Acceleration. How much delta changes per $1 stock move.

Vega: Volatility. How much the option price changes per 1% IV move.

Four forces. They act simultaneously. Sometimes together, sometimes fighting each other. The next lesson shows what happens when all four pull at once.

Key Takeaways

Gamma = how fast delta changes. Buyers benefit (gains accelerate), sellers are hurt (losses accelerate).
Vega = impact of implied volatility changes. Buyers want IV up, sellers want IV down.
IV crush (after earnings) can make you lose money even when the stock moves your way
All four Greeks — delta, theta, gamma, vega — act on every option simultaneously

Pop Quiz — Let's see if this stuck.

Your delta is 0.35 and gamma is 0.04. Apple goes up $3. What is your new approximate delta?

About 0.47. Gamma of 0.04 means delta increases by 0.04 per $1 move. After $3: 0.35 + (3 × 0.04) = 0.47. Your option is now more responsive to further gains.

The stock went up $2 but your option lost money. Which Greek is likely responsible?

Vega. If implied volatility dropped (common after earnings or news events), the vega loss can overwhelm the delta gain. The stock moved in your favor, but the market's expectation of future movement collapsed.

Bottom Line

Gamma accelerates your delta as the stock moves. Buyers benefit, sellers are at risk. Vega measures the impact of volatility changes. IV crush can kill a winning trade. Together with delta and theta, these four forces explain every movement in every option price. The trilogy is done.

Next up: How Option Prices Move →

You know all four forces individually. Now comes the important part: what happens when they all act on your trade at the same time. Because they always do.