Usefulness of Option Greeks

[Usefulness of Option Greeks]

Hello,

 

This thread has been created to understand the Option Greeks. I would like to say that we, as an individual trader, least focus on the importance of the option greeks before taking a position in options. Let us discuss about the option greeks and its importance -

 

Basically there are five option greeks. They are -

 

(1) Delta - It measures an options sensitivity (i.e. option price) to changes in the price of the underlying assets.

 

(2) Gamma - It measures the delta's sensitivity to changes in the price of the underlying assets.

 

(3) Vega - It measures an option's sensitivity to changes in the volatility of the underlying assets.

 

(4) Theta - It measures an option's sensitivity to time decay.

 

(5) Rho - It measures an option's sensitivity to changes in the risk free interest rate.

 

These five option greeks are really plays an important role in trading decision making.

 

I hope this will help.

 

 

Thanks Larry. When trading options, I pay much attention to Delta and Vega. I mostly short options.