The Greeks
Master the sensitivities that drive options pricing
Educational Content: The Greeks are mathematical models used to understand options price sensitivity. Real-world trading involves additional complexities.
Delta
Δ
Price sensitivity to underlying asset movement
Range: -1 to +1
Measures how much an option's price changes for each $1 move in the underlying asset.
Example: A delta of 0.5 means the option price moves $0.50 for each $1 move in the stock.
Gamma
Γ
Rate of change of Delta
Range: 0 to ∞
Measures how much Delta changes for each $1 move in the underlying asset.
Example: High gamma means Delta changes rapidly as the stock price moves.
Theta
Θ
Time decay sensitivity
Range: Negative
Measures how much an option loses value each day due to time passing.
Example: A theta of -0.05 means the option loses $0.05 in value each day.
Vega
ν
Volatility sensitivity
Range: Positive
Measures how much an option's price changes for each 1% change in volatility.
Example: A vega of 0.20 means the option price moves $0.20 for each 1% volatility change.
Rho
ρ
Interest rate sensitivity
Range: Variable
Measures how much an option's price changes for each 1% change in interest rates.
Example: Generally has the least impact on option pricing in normal market conditions.