Gamma measures the sensitivity of what aspect of options?

Gamma is a key metric in options trading that specifically measures the rate of change of an option's delta in relation to changes in the price of the underlying asset. Delta itself represents the sensitivity of an option's price to changes in the price of the underlying asset. Therefore, gamma quantifies how much the delta will change when there is a 1% change in the price of the underlying asset.

By understanding gamma, traders can assess the stability of their delta positions over different price movements of the underlying asset. This is particularly important in the context of risk management, as it helps traders gauge how their options positions may react to market movements, allowing for more informed decisions regarding hedging and strategy adjustments.

While other concepts such as market volatility, interest rates, and liquidity are important in the broader context of financial markets and options trading, they do not specifically pertain to the way gamma functions relative to an option's delta and the underlying asset price. Thus, focusing on gamma's role in relation to delta and asset price sensitivity clarifies its importance in options pricing and trading strategies.