Options Greeks


The price of an option contract is affected by several factors, including the amount of time left until the option expires, and the price performance and volatility of the underlying stock.

Options Greeks provide you with a way of measuring the degree to which these factors are influencing the price, or premium, of an option contract. These measures are called Greeks because they are each named for a letter in the Greek alphabet.

Delta

This measures how the price of an option changes when the price of the underlying stock changes. When a call option’s underlying stock increasing in price, the price of the call option contract will rise with it. This is called positive delta.

On the other hand, a put option’s underlying stock rises in price, the price of the option falls. This is called negative delta.

Gamma

This measures the rate at which an option’s delta is changing. As an option contract comes closer and closer to being “at-the-money,” gamma will tend to rise.

Vega

Vega measures the change in an option’s price based on the volatility of the underlying stock. If the underlying stock becomes more volatile, that option’s vega will increase, and this indicates that the price of the option should rise along with it.

Theta

Theta measures the rate at which an option’s price decreases as an option gets closer to expiry. Options that are getting closer to being at-the-money will also have higher theta.