Gamma Explained: What Every Australian Options Trader Needs to Know in 2025

Options trading has surged in popularity among Australian investors, but understanding the complex factors that drive options pricing remains crucial. One of the most important—and often misunderstood—factors is gamma. As 2025 brings new market dynamics and regulatory updates, getting a grip on gamma could mean the difference between smooth sailing and portfolio turbulence. Here’s why gamma should be on your radar this year.

What Is Gamma and Why Does It Matter?

In the world of options trading, gamma measures how quickly an option’s delta changes as the underlying asset’s price moves. Think of delta as your option’s sensitivity to price changes in the underlying asset, while gamma shows how much that sensitivity itself can shift. High gamma means delta can swing rapidly, leading to potentially significant gains—or losses—if you’re not paying attention.

• Gamma is highest for at-the-money options nearing expiry. This is where small market moves can have outsized effects on your position.

• Gamma can work for or against you. If you’re long options, high gamma can amplify gains as the underlying price moves in your favour. But if you’re short options, it can escalate losses just as quickly.

In 2025, with increased market volatility and the rise of retail trading platforms, gamma risk is more relevant than ever for Australian investors.

How 2025 Policy and Market Changes Affect Gamma Strategies

This year, the Australian Securities and Investments Commission (ASIC) implemented enhanced margin requirements for retail derivatives trading, including options. These changes are designed to better protect investors from sudden market swings—often exacerbated by gamma-related moves in popular stocks and indices.

Here’s what’s changed in 2025:

• Higher margin calls for short options: To address gamma risk, brokers now require greater collateral from traders shorting options that are close to expiry and at-the-money.

• Real-time risk monitoring: Many platforms have rolled out real-time analytics, alerting traders when their positions are exposed to high gamma risk as expiry approaches.

• More educational resources: The ASX and major brokers have expanded training materials specifically focused on managing gamma exposure.

These policy shifts aim to prevent scenarios like the 2021 US ‘gamma squeeze’ events, where waves of options buying triggered wild price swings. While Australia’s market structure differs, the lessons remain clear: ignoring gamma can leave even seasoned traders exposed.

Practical Examples: Gamma in Action for Australian Investors

Let’s break down how gamma plays out in real-world trading:

• Trading ASX200 Index Options: An investor buys a call option on the ASX200, expiring in a week, at-the-money. With high gamma, a small upward move in the index rapidly increases the option’s delta, making the position behave more like owning the index itself. If the market reverses, losses can mount quickly as delta swings back.

• Covered Call Strategies: Suppose you hold Telstra shares and write near-the-money calls. As expiry nears and volatility picks up, gamma spikes—meaning your covered call could suddenly become deep in-the-money and require you to deliver shares or buy them back at a loss.

• Hedging Portfolios: Institutional investors often use options to hedge large portfolios. In volatile conditions, gamma can create a feedback loop, forcing frequent rebalancing to maintain the desired risk profile. This is especially relevant with 2025’s unpredictable commodity and tech sectors.

Key takeaway: Gamma is not just a technical metric—it’s a practical risk management tool that can help you anticipate and navigate market surprises.

How to Manage Gamma Risk in 2025

Whether you’re a beginner or a seasoned trader, managing gamma risk is essential. Here are steps you can take:

• Monitor your exposure: Use trading platforms with built-in analytics to track your positions’ gamma, especially as expiry approaches.

• Adjust position size: Limit the size of short option positions with high gamma, or consider spreads that offset some risk.

• Stay informed about market events: Earnings announcements, policy updates, and macroeconomic news can all trigger sudden moves that amplify gamma effects.

• Consider rolling positions early: Don’t wait until the last minute to adjust or close out positions with high gamma exposure.

With ASIC’s 2025 rules and smarter trading tools, it’s easier than ever to keep gamma risk in check—if you know what to look for.