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What are the stock options of Greeks and their purpose? (The Basics)
Example stock option: We pay $125 for a $PFE $41 Call expiring on 12/11
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Example stock option: We pay $125 for a $PFE $41 Call expiring on 12/11
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Delta (Δ)
Measures the amount of change an options price will be when the stock moves.
Delta for our $PFE call is .45
This means that for every dollar move up or down the option price will either increase or decrease by $45. (Delta can never be over 1.00)
Measures the amount of change an options price will be when the stock moves.
Delta for our $PFE call is .45
This means that for every dollar move up or down the option price will either increase or decrease by $45. (Delta can never be over 1.00)
Theta (Θ)
Theta is the rate of time decay an option has as each day passes closer towards its expiration.
Theta for our $PFE call is -.095
This means that our option price will lose roughly $10 the first day the option is open, and will increase each day closer to expiration.
Theta is the rate of time decay an option has as each day passes closer towards its expiration.
Theta for our $PFE call is -.095
This means that our option price will lose roughly $10 the first day the option is open, and will increase each day closer to expiration.
Gamma (Γ)
Represents the rate that the delta of our stock option will change when the stock moves.
Gamma for our $PFE call is .1028
Positive Gamma will increase the delta, and negative Gamma will decrease the delta. (Gamma can never be over 1.00)
Represents the rate that the delta of our stock option will change when the stock moves.
Gamma for our $PFE call is .1028
Positive Gamma will increase the delta, and negative Gamma will decrease the delta. (Gamma can never be over 1.00)
Vega (V)
Vega is the measurement of a stock option’s price sensitivity to changes in volatility of the stock.
Vega for our $PFE call is .024
Vega helps represent the amount that an option contract’s price changes in a reaction to a 1% change in implied volatility.
Vega is the measurement of a stock option’s price sensitivity to changes in volatility of the stock.
Vega for our $PFE call is .024
Vega helps represent the amount that an option contract’s price changes in a reaction to a 1% change in implied volatility.
Rho (Ρ)
Rho represents the rate of change a stock option’s value has on a 1% change in the interest rate.
Rho for our $PFE call is .0037
So if interest rates are raised by 1%, then our call option would have an increase of $0.37
Rho represents the rate of change a stock option’s value has on a 1% change in the interest rate.
Rho for our $PFE call is .0037
So if interest rates are raised by 1%, then our call option would have an increase of $0.37
