At seven days until expiration, there is less time for price action in the
stock to change the expected moneyness at expiration of ITMs or OTMs.
ATM options, however, continue to be in play. Here, the ATM gamma is
approaching 0.35. But the strikes below 41 and above 48 have 0 gamma.
Similarly-priced securities that tend to experience bigger price swings
may have strikes $3 away-from-the-money with seven-day gammas greater
than zero. The volatility of the underlying will affect gamma, too. Exhibit
2.9 shows the same 19 percent volatility QQQ calls in contrast with a graph
of the gamma if the volatility is doubled.
EXHIBIT 2.9 Gamma as volatility changes.
Raising the volatility assumption flattens the curve, causing ITM and
OTM to have higher gamma while lowering the gamma for ATMs.
Short-term ATM options with low volatility have the highest gamma.
Lower gamma is found in ATMs when volatility is higher and it is lower for
ITMs and OTMs and in longer-dated options.