DEFINITION of ‘Zomma’
An options greek used to measure the change in gamma in relation to changes in the volatility of the underlying asset. Zomma, though considered a third level greek, is a first derivative of volatility, a second degree derivative of an underlying asset and third as it is related to the value of that underlying asset.
BREAKING DOWN ‘Zomma’
Options traders and risk managers most often use a measure of zomma to determine the effectiveness of a gamma hedged portfolio. Zomma’s measure will be a measure against the change in volatility of the portfolio, or underlying assets of the portfolio.