856 Part VI: Measuring and Trading VolatHity 
FIGURE 40-4. 
Gamma comparison, with XYZ = 50. 
8 
7 
0 6 0 ..-
X 5 
Cl! 
E 4 E 
Cl! 3 (!) 
2 t= 1 year 
t= 6 months 
t= 3 months 0 '-'----~---__._ ___ _._ ___ _._ ___ ....___ 
40 45 50 55 60 65 
Strike Price 
TABLE 40-4. 
Gamma comparison - various amounts of time remaining 
(with XYZ = 50). 
Time Remaining Strike Price 
40 45 50 55 60 
1 year .015 .029 .039 .04 .033 
6 months .011 .037 .058 .051 .030 
3 months .003 .039 .086 .057 .015 
2 months .108 
1 month .166 
1 week .288 
65 
.023 
.013 
.002 
Note that the at-the-money options (January 50's and February 50's) on ABC, 
the less volatile stock, have larger gammas than do their XYZ counterparts. However, 
look one strike higher (January 55's), and notice that the more volatile options have a 
slightly higher gamma. Look two strikes higher and the more volatile options have a 
vastly higher gamma, both for the January 60's and the February 60's. 
This concept makes sense if one thinks about the relationship between volatili­
ty and delta. On nonvolatile stocks, one finds that the delta of even a slightly in­
the-money option increases rapidly. This is because, since the stock is not volatile, 
buyers are not willing to pay much time premium for the option. As a result, the 
gamma is high as well, because as the stock moves into-the-money, the increase in