What Are Option Greeks?
Option Greeks provide measurements that show an option’s sensitivity to certain factors in the market, such as price changes, and the passage of time. The Greeks help determine how options may react to a given change in some of these factors.
Don’t know what options are? Read this first.
Disclaimer: This article is simply for educational purposes. I’m not a financial expert, and you should always trade at your own risk.
The five main greeks:
Delta (Δ)
Represents how much the price of the option will change as a result of a $1 move in the price of the underlying asset.
In other words, how much does the price of the option go up or down as the price of the underlying asset goes up and down.
Gamma (Γ)
Represents how much Delta changes if the value of the security increases or decreases by $1.
Gamma can be used to help forecast changes in an option’s Delta value and determine the stability of the Delta value.
Theta (Θ)
Also known as time-decay, Theta represents the dollar amount that the option’s price is expected to decrease per day throughout the contract’s lifespan.
As expiration nears, the value of Theta increases and the value of options contracts decreases because the time limit left to profit from an option decreases.
Rho (ρ)
Represents the price sensitivity of an option relative to a 1% change in the interest rate.
For example, if an option has a Rho of 0.50, then the value of the option would increase or decrease by an average of 50 cents when the interest rate increases or decreases by 1%.
Vega (ν)
Represents how much the price of an option changes based on a 1% change in the volatility of the underlying asset.
For example, if an option has a Vega of 0.10, then the option’s price will change by 10 cents as long as the implied volatility changes by 1%. A decrease in Vega represents a decrease in the value of both put options and call options. An increase in Vega represents an increase in the value of both put options and call options.
How to view Option Greeks on Deribit
At the time of writing, Deribit does not show all of the option greeks on their option chain. All of the greek values can only be accessed through their API.
We’ve made this easy by displaying all of the option greeks on our option chain scanner. Check it out https://www.coinoptionstrack.com/
Takeaways:
Option greeks are a great tool for evaluating the risk between different options by providing information that allows traders to make informed decisions.
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