Option Greeks

Option Greeks are the “Greek Letters” where each letter measures a different dimension of the risk in an option position. Option Greeks allow an options trader to calculate changes in the value of the option contracts with respect to the changes in the factors that affect the value of options. Further, the trader can manage the Greeks in such a way that all the risks associated are in an acceptable range. The common factors that a trader considers are the price of the underlying, volatility in price, time to expiry, risk-free rate of interest and strike price. Delta, Gamma, Theta, Vega, and Rho, are the commonly used Greeks which will help determine the risk and potential reward for a strategy.

Additionally, advanced Greeks like Vanna and Volga (Vomma) offer deeper insights into how changes in volatility and other second-order effects impact option pricing.