Introduction to Greeks of Options

Coincall offers European-style options, and the premium of an option, which is its value, is influenced by several factors commonly known as the Greeks. Delta, Gamma, Vega, and Theta are the most widely used Greeks, and understanding them can help traders in their options trading.

Delta:

Delta measures the impact of the underlying price change on the value of the option. For a call option, Delta ranges from 0 to 1, while for a put option, Delta ranges from -1 to 0.

Example:

If a call option has a Delta of 0.1 and the underlying asset price increases by $1, the option value is expected to increase by $0.1. If a put option has a Delta of -0.1 and the underlying asset price increases by $1, the option value is expected to decrease by $0.1.

Gamma:

Gamma measures the effect of a change in the underlying asset's price on the option Delta. The higher the Gamma, the greater the change in the option Delta, which means the greater the change in the option value.

Example:

If a call option has a Gamma of 0.1 and a Delta of 0.4, and the underlying asset price increases by $1, the option Delta will change from 0.4 to 0.5.

Theta:

Theta value measures the impact on the option value as the expiration date approaches. Options with high Theta values (usually short-term expiration options) will rapidly decline in value as they approach their expiration date. For buyers of call and put options, Theta value is negative, so buyers need to be aware of the risk of time decay.

Example:

If the Theta value of an option is -1, the option is expected to be worth $1 less the next day, regardless of the effect of other factors.

Vega:

Vega measures the impact of a change in the implied volatility of the underlying asset on the option value. Specifically, it measures how much the option value will change for a 1% change in implied volatility.

Example:

If an option has a Vega of 10 and implied volatility increases by 1%, the option value is expected to increase by $10; a 1% decrease in implied volatility is expected to decrease the option's value by $10.