Gammatheoretically projects the amount by which your position's delta will change when the stock price changes by $1.00.
For example, if your position's gamma is $50, then your position delta will increase by $50 if the stock price increases by $1.00. And your position delta will decrease by $50 if the stock price falls by $1.00.
If your position's gamma is -$50, then your position delta will decrease by $50 if the stock price increases by $1.00. And your position delta will increase by $50 if the stock price falls by $1.00.
Why Gamma Is Important Positive gamma means that the rate at which you profit will ACCELERATE as the stock price continues to move in your favor, while the rate at which you lose will DECELERATE as the stock price makes continued moves against you.
Negative gamma means that the rate at which you profit will DECELERATE as the stock price continues to move in your favor, but the rate at which you lose will ACCELERATE as the stock price makes continued moves against you. With negative gamma, a very stable stock price is your best friend.
Special note: Gamma has an inverse relationship to Theta.
