Understanding Forex Option Greeks

Delta is typically shown as a numerical value between 0. Woodruff Johnson 23 articles. Alan Farley 13 articles. Save your draft before refreshing this page. Bollinger Bands are a volatility based indicator, developed by John Bollinger, which have a number of trading applications. Gamma is an important metric because it corrects for convexity issues when engaging in hedging strategies.

How market makers view gamma. Let’s consider how market makers view gamma. Generally, options market makers seek to be delta-neutral—that is, they want to hedge their portfolios against movement in the underlying spot rate. The amount by which their delta, or hedge ratio, changes is known as gamma.

Breaking Down 'Gamma'

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Gamma is the first derivative of delta and is used when trying to gauge the price movement of an option, relative to the amount it is in or out of the money. In that same regard, gamma is the second derivative of an option's price with respect to the underlying's price. Delta, gamma, and volatility are concepts familiar to nearly all options traders. However, these same tools used to trade currency options can also be useful in predicting movements in the underlying spot price . Options, which are typically associated with the stock market, can also be applied to the forex market. This article will briefly explain what forex options are and provide an introduction as to how the various Greeks are used to determine risk and evaluate options positions.