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5.d Option Greeks

Option Greeks

The "Greeks" are measures of the sensitivity of an option's price to various factors:

  1. Delta (Δ):
  2. Measures the rate of change of the option's price concerning changes in the underlying asset's price.

  3. For call options, delta ranges from 0 to 1; for put options, it ranges from -1 to 0.

  4. Gamma (Γ):

  5. Measures the rate of change of delta concerning changes in the underlying asset's price.

  6. Indicates the curvature of the option's value relative to the underlying price.

  7. Theta (Θ):

  8. Measures the sensitivity of the option's price to the passage of time, also known as time decay.

  9. Options lose value as they approach expiration, and theta quantifies this effect.

  10. Vega (ν):

  11. Measures the sensitivity of the option's price to changes in the volatility of the underlying asset.

  12. Higher volatility increases the potential for the option to end up in-the-money, thus increasing its value.

  13. Rho (ρ):

  14. Measures the sensitivity of the option's price to changes in the risk-free interest rate.
  15. For call options, a rise in interest rates typically increases the option's value; for put options, it decreases the value.
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