The Greeks in Options refer to various calculations you can use to measure different factors that might affect the price of an options contract. At Calm Hedge, we focus primarily on the main 4 greeks: Delta, Gamma, Theta, and Vega. Here is a very simplistic way to look at these 4 Greeks:
Delta
Delta is the total amount the option price is expected to move based on a $1 change in the underlying security. It indicates how much the value of an option should change when the price of the underlying stock rises by one dollar.
Gamma
Gamma measures the rate of change in the delta for each one-point increase in the underlying asset. It is a valuable tool in helping you forecast changes in the delta of an option or an overall position.
Theta
The term theta refers to the rate of decline in the value of an option due to the passage of time. It can also be referred to as the time decay of an option. The estimate is per day amount. The rate at which an option loses value over time is often referred to as “Theta Decay”.
Vega
Vega is the measurement of an option’s price sensitivity to changes in the volatility of the underlying asset. Vega represents the amount that an option contract’s price changes in reaction to a 1% change in the implied volatility of the underlying asset. Options that are long have positive Vega while options that are short have negative Vega.