Option Greeks are the various partial derivatives of the Black-Scholes Option Pricing Model, each with respect to a different variable. Greeks provide a way to measure the sensitivity of the option price to various factors, such as the underlying asset price, time, volatility, etc. The five key greeks commonly used by the traders are: Delta […]

# Option Greeks

## Option Greeks: Delta

Delta is the change in option premium expected from a small change in the stock price. It is an important by-product of the Black-Scholes model. There are three common uses of delta. Measure of option sensitivity Hedge ratio Likelihood of becoming in-the-money Measure of Option Sensitivity For a call option, the delta is represented as: […]

## Option Greeks: Gamma

An option’s delta changes as the stock price changes. Gamma is a measure of the rate of change in the delta with respect to changes in the underlying price. Gamma is the second derivative of the option premium with respect to the stock price. It is the first derivative of delta with respect to the […]

## Option Greeks: Theta

Theta is a measure of the sensitivity of an option to the time remaining until expiration. It is a measure of the time decay of the option. The value of theta is the dollar value that the option will lose each day with the passage of time. Theta value is calculated as a dollar value […]

## Option Greeks: Vega

Vega is a measure of the sensitivity of the option price to the volatility of the underlying asset. It is expressed as the amount of money an option will gain or lose, with a 1% increase or decrease in volatility. The higher the volatility, the higher is the value of the option. For example, an […]

## Option Greeks: Rho

Rho is a measure of an option’s sensitivity to changes in the risk free interest rate. It is expressed as the amount of money an option will lose or gain with a 1% change in interest rates. For example, consider a call option with a rho of 0.05. This means that if the interest rates […]

## Delta Neutrality

Delta neutral refers to a portfolio of underlying assets, where the value of the portfolio is unaffected by small changes in the value of the underlying assets. Such a portfolio is created by taking positions in options such that the positive and negative deltas of various positions will offset each other thereby creating a portfolio […]

## Option Greeks

This video familiarizes traders with a set of Greek risk factors used to monitor a portfolio’s profile. It explains the five key greeks: Delta: The relative change in an option’s price for a given change in the underlying asset. Gamma: The rate of change of delta for a given change in the underlying asset’s price. […]