Glossary term
Short Gamma
A dealer or portfolio position whose hedge must be adjusted with the market — buying into strength and selling into weakness — which amplifies price moves.
A position is short gamma when its required hedge moves in the same direction as the market, so the hedger buys as price rises and sells as it falls. Option sellers are structurally short gamma: as the underlying climbs, a sold call's delta rises and the dealer must buy shares to stay neutral. Because this hedge flow reinforces the prevailing move, heavy short-gamma positioning is destabilising — it is the mechanism behind a gamma squeeze on the way up and accelerated selloffs on the way down. It is the mirror image of long gamma.