Speed

What Is Speed?

Speed is the third-order Greek measuring the rate gamma changes with respect to the underlying price. It’s the third derivative of option price: gamma measures how fast delta moves, speed measures how fast gamma moves. High speed means a price move will not only change delta but also rapidly change how quickly delta is changing.

Because speed is a third-order derivative, it’s rarely quoted on retail platforms or standard option chains. Its effects are real and felt most during sharp, sustained moves. When the underlying is moving quickly, speed determines whether a dealer’s hedging requirements accelerate, decelerate, or stay constant.

Speed is positive for long options near ATM. As the underlying moves toward a strike, gamma increases (delta becomes more sensitive), and speed captures the rate of that gamma increase. When the underlying overshoots and moves deep ITM, gamma falls and speed turns negative — hedging requirements decelerate.

Why It Matters for Options Traders

Speed is most relevant for understanding gamma squeezes and dealer behavior during fast markets. In a gamma squeeze, sharp price moves force dealers with short gamma to hedge by buying the underlying, pushing the price further, forcing more hedging. Speed determines how fast this feedback loop accelerates.

At the market structure level, speed explains why squeezes intensify even when the underlying’s pace is constant. If the move carries the underlying toward strikes where speed is high, hedging demand increases nonlinearly — each additional dollar generates more hedging pressure than the last. When the move passes peak-gamma strikes, speed reverses and hedging pressure decelerates.

For traders managing portfolios across multiple strikes, monitoring speed flags when overall gamma exposure is about to shift significantly with small price movement. It’s a leading indicator of how rapidly risk builds or dissipates in a directional move.

Key Characteristics

• Third-order Greek: Speed is the rate of change of gamma with respect to price — one layer deeper than gamma itself
• Positive approaching ATM: As price moves toward a strike from below, gamma is rising, meaning speed is positive
• Negative past peak gamma: Once an option is deep ITM, gamma falls with further moves and speed turns negative
• Gamma squeeze accelerant: High speed near concentrated strikes means dealer hedging demand grows nonlinearly during a directional run
• Not widely quoted: Retail platforms rarely display speed; its effects are inferred from gamma evolution during fast markets
• Relevant for structured products: Dealers managing books with concentrated gamma at specific strikes must account for speed in their hedging models