Understanding the Option Greeks (Easy Guide)

The Greeks are an important tool for those actively trading options contracts.   Basic understanding of the Greeks will give you an edge over other options traders.

The most common of the Greeks are: Delta, Gamma, Theta, Vega

Delta – Measures the rate of change with respect to changes in the stocks price. Calls have positive Delta and Puts have negative Delta.  1 share of stock also equals 1 Delta.

Gamma – Measures the rate of change in the delta as a percentage with respect to changes in the stock price. Its effect is seen closest to expiration.

Theta – measures the sensitivity of the value of the derivative to the passage of time: “time decay.”

Vega – measures the sensitivity to volatility.

The option greeks

In the above picture we are looking at the 363 Call strike in SPY

Delta is .52 so if SPY  moves 1 point higher or lower our contract will increase or decrease .52.

Gamma is .19 so if SPY moves 1 point higher or lower the delta will increase or decrease 19%

Theta is .24 our contract will lose .24 every day.

Vega is .11 for every 1% change in volatility our contract will increase or decrease .11

 

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