Well no, gamma is an input in the way that it affects how fast delta moves. The option price is supposed to be the output. The option price does not determine how much gamma is there. It's P(t+1) = Underlying X (+-(delta) X (1+ gamma)) So when delta is 1, gamma is 0, then it's just P(t+1) = Underlying) X 1. But that's not the case during those extreme market events like on Monday, Oct. 19, 1987. That's why I say unless you have the option chain of SPX from that day, then you can't really confirm to me that gamma was really zero on that day just because the options were EDITM. And according to this article from Seeking Alpha here,
"Option Gamma can be a more extreme measure than 1 or -1 because there is no upper limit to the achievable Gamma values, however it is a rare circumstance."
https://seekingalpha.com/article/4468397-gamma-options?gclid=Cj0KCQiA-JacBhC0ARIsAIxybyPlt9n5UXA9e4jmuqbg09kW72aN2BkY6Z7_qo89d6g0Di55U_N3SYUaArQsEALw_wcB&internal_promotion=true&utm_campaign=18367158427&utm_medium=cpc&utm_source=google&utm_term=141065816363^dsa-1485125208378^^622615738517^^^g
Unless the author means something else but "no upper limit" means the possibility of infinite gamma. This is not even a theory that's been invented by me. It does exist.
Ok I appreciate you are trying to help me understand how MM's work but I am not understanding some of the terms. What do you mean by "20,000 up" and "300 up"? I know what you are trying to illustrate here (that's actually what happened with the GMC gamma squeeze with all the retail traders buying up GME calls and MM's for the options couldn't hedge properly because there weren't enough GME shares and on that day I bet that's another case where gamma probably went into infinite) but it still doesn't explain how circuit breakers and market closing works to stop the price pressure because ALL the markets are stopped. I mean in this case, the buyer of these ATM calls would not be allowed to buy but you wouldn't be allowed to make markets either to satisfy the demand of the caller sellers who just went to your stock market to try to hedge. And when the circuit breakers is lifted or the market is re-opened, the price pressure would still be there because those demands would still be outstanding. That's why I am puzzled why the price pressure would all of sudden dissipate after a circuit breaker/market closing takes place. If the price pressure can just dissipate like that, why couldn't it dissipate BEFORE a circuit breaker/market closing takes place?
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