Why the Greeks Matter

An optionThe right, not the obligation, to buy or sell at a set price.’s price is pushed around by several forces at once — the underlying’s price, the passage of time, and changes in volatilityThe size of price swings — not their direction. — all moving the premium simultaneously. The GreeksNumbers measuring how an option’s price reacts to each factor. are simply a set of numbers that separate these forces, telling you how sensitive your optionThe right, not the obligation, to buy or sell at a set price. is to each one individually.

• DeltaHow much an option moves per ₹1 move in the underlying. — change in optionThe right, not the obligation, to buy or sell at a set price. price per ₹1 move in the underlying (price sensitivity).
• GammaHow fast an option’s delta changes with price. — how fast deltaHow much an option moves per ₹1 move in the underlying. changes (the acceleration).
• Theta — premium lost per day to time decayHow much an option loses in value each day from time passing. (time sensitivity).
• VegaHow much an option’s price changes when volatility changes. — change in premium per 1% change in volatilityThe size of price swings — not their direction. (volatilityThe size of price swings — not their direction. sensitivity).
• RhoAn option’s sensitivity to interest-rate changes. — sensitivity to interest ratesThe price of money — what borrowing costs and saving earns. (usually minor).