Delta and Gamma

• Options come in puts and calls and are contracts to buy or sell a financial instrument at a specified strike price for a set period of time. Traders buy or sell options in anticipation of an option being "in the money" at expiration. An option's delta describes the relationship between the option price to the price of the underlying instrument. Gamma, in turn, measures the relationship between delta and the underlying's price.
  
  

Directional Trades

• Gamma may be either positive or negative, independent of whether delta is negative or positive. A positive gamma indicates that the delta of an option will increase as the underlying's price rises; a negative gamma would point to a decrease in an option's delta as the price of the underlying rises. In directional trades, or trades where it matters which direction price moves, the options trader may wish to use a strategy that sustains a positive gamma, as this will be more likely to be profitable.
  
  

Hedging

• Gamma neutral trading is indifferent to price direction. Therefore, it may take into account either negative or positive gamma, in which a positive gamma might require a straddle strategy (that is, buying both calls and puts of the same strike price), and a negative gamma might invoke a short straddle (selling both calls and puts at the same strike price).