OPTION GREEKS

Option Greeks are an essential part of trade analysis. The Greeks help us to predict what an option will do given a move in the underlying share price.  There are 5 main Greeks including Delta, Gamma, Vega, Theta and Rho.

We have a quick summary of each below.

Delta:

Determines the amount by which an option premium with change given a movement in the underlying. For example, a delta of 0.5 tells us a $1.00 move in the underlying will change the value of the option by 0.5 x $1.00= $0.50.

Delta's change depending on the underlying value in relation to the option strike price. Generally options follow the below:

At the Money options (ATM) Delta = 0.5

In the Money options (ITM) Delta = 1

Out of the Money options (OTM) Delta =0

Gamma:

  The speed at which delta changes compared with the speed of the underlying asset.

Vega

Sensitivity of an option price to a change in volatility. When volatility increases, bought options increase in value and when volatility falls, bought options decrease in value.

Theta

The sensitivity of an option price to time decay. 

Rho

Sensitivity of an option price to a change in interest rates.

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