Greeks in Options
Interpretations of Greeks in options
Greeks in options are financial metrics that traders can use to measure the factors that affect the price of an options contract. The Greeks are delta, gamma, theta and Vega.
How does delta impact an options value?
If the value of delta is 1, what this means is that if the stock price increases 1 $ the options will also increase by 1 $. Conversely if the stock price decrease it will also decrease the options price.
How does gamma impact an options value?
Gamma gives the rate of change of delta.
When the option is out of money gamma tends to be small
When an option is near or at the money it is the largest.
When gamma is zero delta will not change with small changes in price.
How does theta impact an options value?
Theta is known as time decay. If the value of theta is zero it implies that the options value neither increases or decreases with time.
When theta value is negative, it indicates that the value of the options decreases with time. This helps in planning the expiration date. The closer you get to the expiration date, the price decrease accelerates.
How does Vega impact an options value?