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If you want to learn more about binary options trading strategies and binary options indicators, you have come to the right place. Here, we will take a closer look at Binary Options Put Gamma and its properties, so you can use it for your chart analysis strategy.
What you will read in this Post
What is Binary Options Put Gamma? – Definition
Binary put options gamma is the metric that describes the change in put delta due to a change in the underlying price. It is also the first derivative of the delta of a binary put option.
Put gamma is also represented as:
Gamma = \frac{d\Delta }{dS}
What are the properties of put gamma?
Gamma indicates the rate of change of the exposure to the underlying asset, regardless of whether it is a binary or conventional option.
The gamma of binary put options is positive when they are out of the money. On the other hand, it is negative when they are in the money, and zero when they are at the money, just like the gamma of binary call options.
The time to expiration significantly impacts the absolute value of the gamma, with very short-term options usually having a gamma that tends toward zero. In contrast, it is common to see examples where the gamma for a 25-day 25% option is essentially flat at zero.
The absolute value of the gamma of binary put options remains constant mainly across the implied volatility range. The peak and trough values of the options approach the strike as implied volatility decreases, reflecting the steepening of the delta.
Other properties of gamma
The gamma for binary put options is zero when the option is in the money. This is especially true when the underlying asset moves beyond the strike price. The position changes from long gamma to short gamma and vice versa.
Wrapping it up! – Gamma is a vital trading indicator for binary options traders
Wrapping it up – In options trading, gamma is a vital trading indicator. Traders refer to themselves as long or short gamma players, depending on their feelings about the current market situation. It may sound crazy, but shouldn’t a short-gamma trader become a long-gamma trader to deal with volatile markets? Possibly. But you will never find evidence of the rational expectations theory! As a long-time “local” options trader, I can confidently say that market rationality has never existed and most likely never will.
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