I’ve read a few option books.
THANKS... This is probably the most comprehensive "greeks" article/book I’ve read.

Wonderful blog. …..
A wonder wealth of knowledge there. Thanks so much for your kindness in publishing it!

Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Monday, June 11, 2007

OPTION GREEKS - Introduction

The "Greeks" in options trading is known as a way to measure the sensitivity of an option price to changes in its parameters. The Greeks can help option traders to better understand the potential risk and reward of an option position. However, it is important to note that the numbers given for each of the Greeks are strictly theoretical, as they are only projected based on mathematical models.

In addition, the Greeks numbers also change as the conditions (like actual stock price, volatility) change. How the various Greeks move as conditions change depends on how far the strike price is from the actual price of the stock (Deep ITM or ATM or deep OTM) and how much time is left until expiration.

Options Greeks numbers are usually presented in Greeks tables. The numbers shown in the Greeks table are normally in decimals that indicate the change per share. To normalize the Greeks for dollars, just multiply them by 100 (the number of shares per option contract).

Samples of Greeks Tables for Call Options:













Samples of Greeks Tables for Put Options:











The following are the major Greeks in options trading:

1. Delta
Delta is a measure of the change in the option price resulting from a change in the underlying stock price.

2. Gamma
Gamma is a measure the rate of change of delta due to a one-point change in the price of the underlying stock.

3. Theta
Theta is a measure of the rate of decline of option’s time-value resulting from the passage of time (TIME DECAY).

4. Vega
Vega is a measure the sensitivity of an option’s price to changes in Implied Volatility (IV).


5. Rho
Rho is a measure of the change in an option's price due to a change in interest rate.

We’ll discus each of the Greeks further in the next posts.

To read further about each of the Option Greeks, go to: Option Greeks.

Related Posts:
* OPTION PRICING: How Is Option Priced?
* Understanding IMPLIED VOLATILITY (IV)
* Difference Between Option’s Volume and Open Interest
* FREE Trading Videos from Famous Trading Gurus

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