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Option Greeks are used to measure the sensitivity of an option to changes in the price of the underlying stock, market volatility, and time to expiration. In the trading market, an option's spot price, volatility and time to expiration change simultaneously. Options Greeks help traders understand the impact of changes in these factors on their position.
There are five option greeks:
Each of these options Greeks helps you measure the sensitivity of the option to changes in the spot price, volatility, and time to expiration.
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Option Greeks |
What does it do? |
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Delta |
It helps a trader understand how much the premium of an option will change with a corresponding change in the price of its underlying. Suppose the SBI stock rises from Rs 250 to Rs 270, then Delta will show you the increased premium value of the option. |
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Gamma |
It measures the rate of change of the delta when the value of the underlying changes. In other words, delta measures the change in the price of the premium, while gamma measures the rate of change of the delta. |
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Theta |
It measures the impact of time losses on the pricing of options. It helps a trader to understand how much his option loses in value with each passing day. |
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Vega |
It indicates how much the price of the option will change if the volatility changes. |
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Rho |
It measures the change in the option price for each percentage change in interest rates. |
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