Overview Of Option Greeks

Option pricing is dependent on the factors below:

  • Type of option
  • Price of underlying security
  • Strike price of the option
  • Expiration date of the option
  • Volatility of the price of the underlying security
  • Risk free interest rate
  • Dividends payable
  • Stock splits




The factors above directly affect the price of an option. However, option traders may go one step further to analyse the sensitivity of the price of an option to the option risk characteristics.  These measures of sensitivity are called greeks or the option greeks.

Delta

The delta measures the change in option price relative to the change in the price of the underlying security.

Gamma

Gamma measures the change in the delta relative to the change in the price of the underlying security.

Theta

Theta measures the change in option price relative to the time left to expiry of the option.

Vega

Vega refers to the change in option price relative to the change in the underlying security’s volatility.

Rho

Rho refers to the change in the option price relative to the change in the risk free rate.

Read:

Gamma

Rho

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