DEFINITION of 'Gamma Neutral'
A method of managing risk in options trading by establishing an asset portfolio whose delta rate of change is zero. A gammaneutral portfolio hedges against secondorder time price sensitivity. Gamma is one of the "options Greeks" along with delta, rho, theta and vega. These are used to assess different types of risk in options portfolios. The risk level of an options portfolio could also be managed through delta neutral, theta neutral and vega neutral strategies, which are used to hedge against the risks of price sensitivity, time sensitivity and implied volatility.
BREAKING DOWN 'Gamma Neutral'
A gamma neutral portfolio can be created by taking positions with offsetting deltas. This helps to reduce variations due to changing market prices and conditions. A gamma neutral portfolio is still subject to risk, however. For example, if the assumptions used to establish the portfolio turn out to be incorrect, a position that is supposed to be neutral may turn out to be risky. Furthermore, the position has to be rebalanced as prices change and time passes.

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Term
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Is there a better metric for hedging options than delta?
Learn about delta and gamma hedging options, why gamma is a better metric to use to hedge and how gamma can be used with ... Read Answer >> 
What are common delta hedging strategies?
Learn about common delta hedging strategies, including how to make a position in options delta neutral by offsetting risk ... Read Answer >> 
What are the limitations of using delta to hedge options?
Learn about the delta of an option, how to delta hedge an option position and the limitations of using delta to hedge an ... Read Answer >> 
Why does delta only range from 1 to 1?
Learn what the option Greek delta is, what affects the value of delta for an option and why the delta of an option can only ... Read Answer >> 
How can you use delta to determine how to hedge options?
Learn what delta is, how to use delta to hedge options and how to maintain a deltaneutral position by deltahedging options ... Read Answer >> 
What industries typically use delta hedging techniques?
Learn what industries use delta hedging techniques for options trading, and understand how delta neutral trading strategies ... Read Answer >>