Delta and Gamma

CFA Level II Portfolio Management
#1

Dear all,

If we graph option price against price of underlying asset, the slope of the graph will be the option delta?

If we graph option delta against price of underlying asset, the slope of the graph will be option gamma?

Thank you.

Cheers,

Ernest

#2

Yes, and yes.

#3

Think of gamma as a second derivative of option price with respect to the price of the underlying asset. The higher the gamma, the more volatile the option price will be with respect to the underlying asset’s price.