The Law Dictionary

Your Free Online Legal Dictionary • Featuring Black’s Law Dictionary, 2nd Ed.

GAMMA HEDGE Definition & Legal Meaning

Definition & Citations:

A HEDGE technique used primarily to manage or neutralize the effects of NEGATIVE GAMMA, which can create large losses if markets move sharply and quickly before DELTA HEDGES can be rebalanced. Creating a hedge for a negative gamma position generally requires the purchase or use of a position with positive gamma (e.g., an instrument with positive CONVEXITY, such as a LONG POSITION in a CALL OPTION or PUT OPTION).

Disclaimer

This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.