The binary call option gamma is defined as the first derivative of the binary call option delta with regard to a change in the underlying price. It is often used by traders who take advantage of binary options trading indicators.
Therefore, the gamma indicates the slope of the delta profile. It reflects whether the corresponding futures position of a binary call option becomes longer or shorter when the underlying price rises or falls.
Call Gamma in a nutshell
- The gamma of a binary call option is the derivative of the delta and shows the sensitivity to price changes in the underlying price.
- Gamma shows whether the position of a binary call option lengthens or shortens with changes in the price of the underlying asset.
- Traditional call options always have a positive gamma, while binary call options vary with the status “in the money” or “out of the money”.
How to interpret the Gamma for Binary Call Options?
The gamma of binary call options can be interpreted as a number that indicates whether the equivalent underlying position is higher or lower when the underlying price rises.
- If the equal position increases from 20 to 25, for example, it has a positive gamma.
- If the equivalent position falls to 15 (in case that the market rises), it has a negative gamma.
How does gamma differ between traditional and binary call options?
Thus, the gamma of conventional calls is always positive. When buying traditional calls, the equivalent position always rises when the underlying asset rises, regardless of whether the option is in the money or not.
Binary up and in call options behave differently in that binary call options that are out of the money, because always have a positive binary call option gamma. In contrast, binary call options in the money always have a negative gamma.
