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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).


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