Category: The Greeks
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Gamma
GAMMA I. Definition: An option’s gamma represents the change in its delta in response to an underlying price increase/decrease. The delta is not static and changes as it goes from out-of-the money to in-the-money. The gamma is also known as the delta of the delta Ex: The 100 call has a +.50 delta. The gamma […]
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Delta
DELTA Definition: The rate of change in the theoretical value of an option over a one-point change in underlying price. Expressed as a percentage, it can also be interpreted as the equivalent amount of underlying that an option represents, or hedge ratio. Calls have positive deltas, puts have negative deltas. –The Delta has various interpretations: […]
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Delta Neutrality
This just means that they have various positions on (some bullish and some bearish) but their overall portfolio is pretty delta neutral. It can be very difficult to trade directionally, so we often choose to keep our deltas neutral. This means that if there are big directional moves in the market, our portfolio will be […]
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Lambda
In options trading, lambda is the Greek letter assigned to a variable that tells the ratio of how much leverage an option is providing as the price of that option changes. This measure is also referred to as the leverage factor, or in some countries, effective gearing.
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Ultima
Ultima is the rate at which the vomma of an option reacts to volatility in the underlying asset. It is a third order derivative of the option value with respect to volatility. Ultima is a derivative of vomma, which is a derivative of vega. Ultima is part of the group of measures known as the […]
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Vera
Also known as Rhova. Second order Greek which measures sensitivity of option price to small changes in volatility and interest rates, sensitivity of rho to small changes in volatility, or sensitivity of vega to small changes in interest rates.
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VEGA
Option Vega is a measure of the sensitivity of the price of an option to changes in the implied volatility of the underlying asset. Vega values represent the change in an option’s price given a 1% move in implied volatility, all else equal. This is the option’s sensitivity to volatility. Simply put,it describes how the […]
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Rho
Understanding Rho: The Greek that Measures Interest Rate Sensitivity When delving into the world of options trading, it’s crucial to understand the various Greeks, each of which provides insight into different dimensions of risk and opportunity. One of the often overlooked but essential Greeks is Rho. This Greek measures an option’s sensitivity to changes in […]
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Theta
Understanding Theta in Options Trading Theta measures the rate at which an option’s price decreases as time passes, also known as time decay. Specifically, Theta quantifies the amount by which the value of an option declines with the passage of one day, holding other factors constant. Key Points about Theta: Time Decay: Theta represents time […]
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Beta
Understanding Beta in Options Trading Beta is a measure of an asset’s volatility in relation to the overall market or a designated benchmark, such as a stock index. It is a key concept in portfolio management and risk analysis, providing insights into how a particular asset moves in relation to the broader market. Definition and […]