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Optionetics Trading Education Center
GREEKS
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ChanelTrader
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The option Greeks are a set of measurements that quantify an option position’s exposure to risk. Options and other trading instruments have a variety of risk exposures that can vary dramatically over time or as markets move. Each of the option Greeks represent a different variable of option pricing.
Each risk measurement is named after a different letter in the Greek alphabet including delta, gamma , theta, and vega (vega is not actually a Greek letter, but it is used in context anyway). In the beginning, it is important to be aware of all the Greeks, although understanding the delta is the most crucial to your success. Comprehending the definition of each of the Greeks will give you the tools to decipher option pricing. Each of the terms defined below has a specific use in day-to-day trading.
Theta: Change in the price of an option with respect to a change in its time to expiration (time value).
Vega: Change in the price of an option with respect to its change in volatility
Delta: Change in the price of an option relative to the change of the underlying security.
Gamma: Change in the delta of an option with respect to the change in price of its underlying security.
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