What is 'Gamma Hedging'
Gamma hedging is an options hedging strategy designed to reduce, or eliminate the risk created by changes in an option's delta.
BREAKING DOWN 'Gamma Hedging'
Delta tells a trader how much an option's price is expected to change because of a small change in the underlying stock or asset. Since delta can experience fast changes that are not in the investor's favor, gamma hedging may help to reduce that risk.
Gamma refers to the rate of change of an option's delta with respect to the change in price of an underlying stock or other asset's price. Essentially, gamma is the rate of changeÂ of the rate of changeÂ of the price of an option. A trader who is trying to be deltahedged or deltaneutral is usually making a trade that volatility will rise or fall in the future. Gamma hedging is added to a deltahedged strategy to try and protect a trader from larger changes in the portfolio than expected or time value erosion.
Gamma Hedging vs. Delta Hedging
A simple delta hedge could be created by purchasing call options, and shorting a certain number of shares of the underlying stock at the same time. If the stock's price remains the same but volatility rises, the trader may profit unless time value erosion destroys those profits. A trader could add a short call with a different strike price to the strategy to offset time value decay and protect against a large move in delta; adding that second call to the position is a gamma hedge.
As the underlying stock rises and falls in value, an investor may buy or sell shares in the stock if she wishes to keep the position neutral. This can increase the trade's volatility and costs. Delta and gamma hedging don'tÂ have to be completely neutral, and traders may adjust how much positive or negative gamma they are exposed to over time.
Â

Gamma Neutral
Gamma neutral hedging is an option risk management technique ... 
DeltaGamma Hedging
Deltagamma hedging is an options strategy that combines delta ... 
Speed
The rate at which the gamma of an option or warrant will change ... 
Color
The rate at which the gamma of an option or warrant will change ... 
Gamma Pricing Model
An equation for determining the fair market value of a Europeanstyle ... 
Greeks
Dimensions of risk involved in taking a position in an option ...

Trading
Options Trading Strategies: Understanding Position Delta
Learn more about the position delta hedge ratio and how it can tell you the number of contracts needed to hedge a position in the underlying asset. 
Investing
Don't Fear Delta Air Lines' Hedging Losses (DAL)
Delta Air Lines (NYSE: DAL) has actively hedged its fuel costs in recent years in order to guard against the risk of oil price spikes. This strategy has proven counterproductive in the last ... 
Trading
Hedging basics: What is a hedge?
Hedging is a widely misunderstood strategy, but it's not as complicated as you might think. 
Investing
Delta Air Line's Potential Pitfalls (DAL)
DuringÂ Delta Airline'sÂ (NYSE: DAL)Â fourthquarter 2014 earnings call in late January, CEO Richard Anderson rattled off the following impressive statistics about the company and its stock: We ... 
Insights
Delta Releases Operating Expense Figures for Q4 and 2016 (DAL)
Deltaâ€™s operating expenses for Q4 and 2016 are down from the previous year despite increased labor costs. 
Financial Advisor
4 Reasons to Still Consider Traditional 2 & 20 Hedge Funds
Find out why traditional 2 & 20 hedge funds are still worth considering as an investment, even though they have underperformed for the last several years. 
Investing
Are Hedge Funds Chasing Performance?
Learn why hedge funds have performed worse than the S&P 500 Index in 2016, and why they may overweight equities to play catchup in the second half of 2016.

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 is the difference between hedging and speculation?
Hedging and speculation are very different in purpose, function and risk profile. Find out how and why investors use both. ... Read Answer >> 
Are there publicly traded hedge funds?
See why a privately arranged hedge fund may decide to take its fund public, and how the investing public at large can gain ... Read Answer >> 
How do traders combine a short put with other positions to hedge?
Learn how sold puts can be utilized in different types of hedging strategies, and understand some of the more common option ... Read Answer >> 
What is spread hedging?
Learn about one of the most common riskmanagement strategies options traders use, called spread hedging, to limit exposure ... Read Answer >> 
Do hedge funds manipulate stock prices?
Learn how authors of a 2012 study say they found evidence of manipulation of stocks by hedge funds on the last trading day ... Read Answer >>