###
Option Greeks Part 1 - Definitions

Dream asked me to blog about the option greeks so I will give it a go based on what I have learned so far...

Delta: The measure of the change of an option’s value with respect to a 1 point move inits underlying (stock, future, commodity, etc.). Calls have a positive delta while puts havea negative delta.

Gamma: The measure of the change of an option’s delta with respect to a 1 point movein its underlying (stock, future, commodity, etc.). After the first 1 point move in anunderlying, the probability of the option being ITM at expiration has changed, andtherefore so has its delta. Gamma measures that change in delta.

Vega: The measure of the change of an option’s price with respect to a 1-point move inits implied volatility.

Theta: The amount of change of an option’s price with respect to a 1-day change in time.

Rho: The amount of change of an option’s price with respect to a 1-point change ininterest rates.

- randomjaywalking
## 3 comments:

Nice little start on this.

Greeks are the foremost indicators to whetehr your option picks are successful or not!

Jay, can you help us understand the practical aspect of option greeks? How do you apply them in option trading?

Roland made a good point that option greeks are the foremost indicators of the success of your option picks. Can you give some examples on that please?

Thank you.

Very useful and informative. More more! Thanks Jay!

Post a Comment