What does a high Gamma value indicate about an option?

A high Gamma value signifies a strong sensitivity of Delta to changes in the underlying asset price. In options trading, Delta measures how much the price of an option is expected to change when there is a $1 change in the price of the underlying asset. Gamma is the derivative of Delta with respect to the underlying price, meaning it measures the rate of change of Delta itself.

When Gamma is high, it indicates that Delta will vary significantly with small changes in the underlying asset's price. This characteristic is particularly important for traders who need precise adjustments in their positions. A high Gamma can represent a scenario where the option is in-the-money or nearing the money, suggesting more volatile price movements as expiration approaches. This sensitivity allows traders to better manage their risk and make an informed decision about option strategies, particularly around key market movements.

The other choices do not accurately reflect the implications of a high Gamma value. High probability of exercise, high risk of loss, and high returns expected relate to different concepts in option pricing and risk management, rather than to the sensitivity of Delta to changes in the price of the underlying asset.