What does a high level of gamma indicate about an option's price behavior?

A high level of gamma indicates that the delta of an option is highly sensitive to changes in the price of the underlying asset. Gamma measures the rate of change of delta in relation to changes in the underlying asset's price. When gamma is high, any fluctuations in the price of the underlying can lead to significant changes in delta, which in turn affects the option's price behavior more rapidly. This sensitivity means that as the underlying asset moves, the likelihood of the option being in the money or out of the money can also change quickly, significantly impacting the option's price.

Therefore, a high gamma is particularly important for traders and hedgers because it implies that the risk associated with holding the option can vary substantially in a short time frame, leading to potentially large gains or losses as the underlying price fluctuates. Understanding this can help in managing risk and making more informed trading decisions.