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The Options Greeks, in simple terms:
Many options beginners get intimidated by these, but they're quite simple!
As traders, we want to know how our portfolio will react to changes in the market.
The Greeks are just lil' symbols that show how an option's price might change.
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Many options beginners get intimidated by these, but they're quite simple!
As traders, we want to know how our portfolio will react to changes in the market.
The Greeks are just lil' symbols that show how an option's price might change.
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Delta: explains how an option will react if the price of the underlying asset goes up.
A call on BTC is a bet that BTC will go up. The Delta tells us how strong this relationship is, quantitatively!
E.g. A .5 delta means a call goes up $.50 for every $1 increase in BTC.
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A call on BTC is a bet that BTC will go up. The Delta tells us how strong this relationship is, quantitatively!
E.g. A .5 delta means a call goes up $.50 for every $1 increase in BTC.
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Theta: tells us how an option's price changes as time goes by.
All options eventually expire. As they approach expiry, they become less useful & decrease in value. Theta tells us how quickly this decline takes place
E.g. A -.5 theta means an option goes down $.50 every day
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All options eventually expire. As they approach expiry, they become less useful & decrease in value. Theta tells us how quickly this decline takes place
E.g. A -.5 theta means an option goes down $.50 every day
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Vega: explains how an option's price changes as (implied) volatility of the underlying asset changes.
All options go up in value when the market predicts increased future vol. In this thread, I explain this relationship:
https://twitter.com/snarkyzk/status/1326672679236210689?s=20
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All options go up in value when the market predicts increased future vol. In this thread, I explain this relationship:
https://twitter.com/snarkyzk/status/1326672679236210689?s=20
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Rho - this Greek expresses the relationship between interest rates and an option's price.
If negative, that means an option will go down in value if interest rates go up. If it is positive, then an option's value will go up with interest rates.
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If negative, that means an option will go down in value if interest rates go up. If it is positive, then an option's value will go up with interest rates.
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Gamma - last but not least, my favorite greek, which explains convexity, or the slope of delta.
It is the derivative of delta, expressing how delta changes as the price of the underlying goes up.
This is the most subtle greek, and so I'll explain it in a future tweetstorm!
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It is the derivative of delta, expressing how delta changes as the price of the underlying goes up.
This is the most subtle greek, and so I'll explain it in a future tweetstorm!
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The Greeks can be summed to find a portfolio's total exposure to market forces.
E.g. A 0 delta portfolio implies that the portfolio isn't affected by market moves. A delta < 0 implies the trader has a net short position.
The Greeks thus help traders understand their risks!
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E.g. A 0 delta portfolio implies that the portfolio isn't affected by market moves. A delta < 0 implies the trader has a net short position.
The Greeks thus help traders understand their risks!
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