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Trading and Investment Terminology

Option Greeks

An option's "Greeks" describes its various risk parameters.

 

Options contracts are used for hedging a portfolio. That is, the goal is to offset potential unfavorable moves in other investments. 

Options contracts are used for speculating on whether an asset's price might rise or fall.

 

Broadly there are five Option Greeks that are used.

  1. Delta: Measure of option price sensitivity to changes in stock price
  2. Gamma: Measure of option price sensitivity to changes in Delta
  3. Theta: measures the time decay of an option as we move towards expiry
  4. Vega: Sensitivity of the option price to changes in volatility
  5. Rho: The sensitivity of the option price to changes in interest rates

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