What are Options Greeks?
Needs an even simpler definition of options Greeks
Options Greeks are risk measures that describe how an option’s price is expected to change in response to various market factors. Greeks are commonly used to understand and manage options risk.
Delta
Delta measures the expected change in an option’s price for a $1 change in the price of the underlying asset.
- Call options generally have positive delta
- Put options generally have negative delta
Options traders can also use delta as a hedge ratio to buy or sell shares of the underlying to hedge their options positions.
Gamma
Gamma measures the rate of change of delta as the underlying asset’s price changes.
Higher gamma indicates that delta may change more rapidly, particularly as expiration approaches.
Vega
Vega measures the sensitivity of an option’s price to changes in implied volatility.
Vega represents the expected change in an option’s price for a 1% change in implied volatility.
Theta
Theta measures the impact of time decay on an option’s price.
Theta reflects the expected reduction in an option’s value as time passes, assuming other factors remain unchanged.
Rho
Rho measures the sensitivity of an option’s price to changes in interest rates.
Rho generally has a greater impact on longer-dated options.