Why the gamma of a stock is 0? Gamma = change in delta 1/1=1? change in underlying
First, figure out the delta of the stock.
And the answer is . . . ?
one
So . . . when the price of the stock changes, the delta goes from . . . what to what?
Remains one right?
You’ve hit the nail on the head. So a stock’s delta has no sensitivity to a change in its own price (ie it does not change).
So . . . what’s the change in delta when the price of the stock changes?
0
Now . . . go back to your original equation for gamma and tell us what gamma is for the underlying stock.
People who may be familiar with calculus may understand better. Gamma is the 2nd order derivative. If Delta has not changed, Gamma cannot change.
In other words, the Greeks are meant for derivatives…not the underlying.
Sounds like the option is pretty deep in the money.
as others have said, gamma is the second derivative with respect to stock price
the stock price is just S
f(S)=S
f’(S)=1 (the delta)
f’’(S) =0 (the gamma)
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