Stock prices often jump rather than move continuously and smoothly (which is against BSM model assumptions), which creates “gamma risk”.
Can I understand this as if stock price abruptly jumps, it means delta is big, it gives more errors in delta measuring call value. however, gamma can capture the error.
Am I understood right?
then, why this should be gamma risk not delta risk?
I found this context from schweser saying
Consider a delta hedge involving a long position in stock and short positions in calls. If the stock price falls abruptly, the loss in the long stock position will not equal the gain in the short call position. This is the gamma risk of the hedge.
why it would be different between gains in short call and loss in long stock?
Thanks in advance,
you are the gurus!