Option Greeks

1) Option Greeks: DELTA

Delta is a measure of the change in the option price resulting
from a change in the underlying stock price.



The delta values will be positive for Calls &
negative for Puts.

At-the-money (ATM) options have (absolute) deltas around 0.5.

Out-of-the-money (OTM) options have (absolute) deltas between 0 to 0.5.

In-the-money (OTM) options have (absolute) deltas between 0.5 to 1.










2) Option Greeks: GAMMA






Gamma is a measure the rate of change of delta due to a
one-point change in the price of the underlying stock.



Unlike delta, gamma is always positive for both Calls and Puts.



Gamma is the highest for the ATM options, and gradually gets lower as it moves
furthers towards ITM and OTM.

That means that the delta of ATM options changes the most when the stock price
moves up or down, as compared to ITM & OTM options.



3) Option Greeks: THETA

Theta is a measure of the rate of decline of option’s time-value
resulting from the passage of time (TIME DECAY).



Theta is typically highest for ATM options, and is progressively lower as
options are ITM and OTM.

This makes sense because ATM options have the highest time value component, so
they have more time value to lose over time than an ITM or OTM option.



4) Option Greeks: VEGA






Vega is a measure the sensitivity of an option’s price to
changes in Implied Volatility (IV).



Vega is highest for ATM options, and is gradually lower as options are ITM and
OTM.This means that the when there is a change in volatility, the value of ATM
options will change the most. This makes sense because ATM options have the
highest time value component, and changes in Implied Volatility would only
affect the time value portion of an option’s price.