The greater the convexity of the option curve, the more bang for our long option buck and the more pain we will endure if we are short the option, in a volatile environment. Mathematically, gamma is the second derivative of the option's price with respect to the underlying cash price. We know that options will be expensive when volatility is actually high or when volatility is thought to be heading higher. We also know that options are cheap when volatility is low or when volatility is believed to be heading lower. Actual volatility is a measure of how much the spot price moves around, in fact, for a given time period.
Implied volatility is the volatility used in the calculation of the option's price.
ABC Inc. Even though spot does not move immediately because traders are confused about the implications of the DEF bid, implied volatilities jump much higher because of the additional uncertainty for ABC's future prospects posed by the DEF initiative. We will make money, not from delta hedging, but from the jump up in the value of the option. We now own something that has become more valuable in the blink of an eye because the market believes that the volatility of the ABC stock price will be greater than previously thought. Pity the poor short option holder. There are other greeks that we will leave for future discussion.