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Greeks
The option Greeks are a set of measurements that quantify an option
position's exposure to risk. Options and other trading instruments have a
variety of risk exposures that can vary dramatically over time or as
markets move. Each of the option Greeks represents a different variable of
option pricing.
Each risk measurement is named after a different letter in the Greek
alphabet including delta, gamma , theta, and vega (vega is not actually a
Greek letter, but it is used in context anyway). It is important to understand all of
the Greeks, although delta is the one that is most crucial to your
success. The Greeks are tools to help you decipher option pricing. Each
has a specific use in trading.
Delta: Change in the price of an option relative to the change
of the underlying security.
Gamma: Change in the delta of an option with respect to the
change in price of its underlying security.
Theta: Change in the price of an option with respect to a change
in its time to expiration (time value).
Vega: Change in the price of an option with respect to its
change in volatility.
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