Example:
delta -- .46 -- every $1 up or down - $.46 up/down change in option price
gama - .03 - rate of change of delta - $1 change in option price will result into change of delta .46 + or - .03, so .49 or . 43
theta - .11 - loss of option value with passage of time - .46 - .11 = .35
vega - - rate of change of volatility
If you’re an option buyer, high gamma is good as long as your forecast is correct. That’s because as your option moves in-the-money, delta will approach 1 more rapidly. But if your forecast is wrong, it can come back to bite you by rapidly lowering your delta.
If you’re an option seller and your forecast is incorrect, high gamma is the enemy. That’s because it can cause your position to work against you at a more accelerated rate if the option you’ve sold moves in-the-money. But if your forecast is correct, high gamma is your friend since the value of the option you sold will lose value more rapidly.
