The options Greeks tell you how your option's price will change based on different factors. Understanding them helps you predict how your trade will behave and manage risk. Here is a simple breakdown of each Greek.
Why Greeks Matter
Options prices change based on multiple factors, not just the stock price. The Greeks measure sensitivity to:
- Stock price movement (Delta, Gamma)
- Time passing (Theta)
- Volatility changes (Vega)
Think of Greeks as dials: Each Greek tells you how much one factor affects your option. The more you understand them, the better you can predict and manage your trades.
The Four Main Greeks
Delta (Δ) - Direction
What it measures: How much the option price changes when the stock moves $1.
Range: Calls: 0 to 1. Puts: 0 to -1.
Example: A call with 0.50 delta gains $0.50 when the stock goes up $1.
Quick tip: Delta also roughly equals the probability of expiring in the money. A 0.30 delta call has about a 30% chance of being profitable at expiration.
Gamma (Γ) - Acceleration
What it measures: How much delta changes when the stock moves $1.
Why it matters: Gamma tells you how quickly delta will change. High gamma means your delta can shift rapidly.
Example: If delta is 0.40 and gamma is 0.10, a $1 stock move changes delta to 0.50.
Quick tip: Gamma is highest for at-the-money options near expiration. This is why short-dated ATM options are so volatile.
Theta (Θ) - Time Decay
What it measures: How much the option loses per day just from time passing.
Range: Always negative for long options (you lose money each day).
Example: A theta of -0.05 means the option loses $5 per day (per contract).
Quick tip: Theta accelerates as expiration approaches. The last week before expiration has the fastest time decay.
Vega (V) - Volatility
What it measures: How much the option price changes when implied volatility moves 1%.
Why it matters: Even if the stock does not move, your option can gain or lose value from IV changes.
Example: A vega of 0.15 means the option gains $15 per contract if IV rises 1%.
Quick tip: Long options have positive vega (benefit from rising IV). Short options have negative vega (benefit from falling IV).
How to Use Greeks in Trading
For Directional Trades
If you are betting on direction, focus on delta. Higher delta means more profit per dollar of stock movement, but also higher cost and risk.
For Income Strategies
If you sell options for premium, theta is your friend. Strategies like credit spreads profit from time decay. Watch theta to see how much you earn each day.
For Volatility Plays
If you think IV will rise or fall, vega tells you how much you will make or lose. Buy options when you expect IV to rise, sell when you expect it to fall.
Greeks Change Over Time
Greeks are not static. They change as:
- The stock price moves
- Time passes
- Implied volatility changes
This is why you should check Greeks throughout your trade, not just at entry.
Track Your Options Trades
Pro Trader Dashboard tracks all your options trades and shows you how Greeks affected your results.
Summary
The options Greeks help you understand how your trade will behave. Delta measures direction, gamma measures acceleration, theta measures time decay, and vega measures volatility sensitivity. Knowing these helps you pick better trades and manage risk effectively.
Learn more about theta decay or implied volatility.