The Greeks
The Greeks measure sensitivities of option prices to various factors: Delta (price change), Gamma (Delta change), Theta (time decay), Vega (volatility), and Rho (interest rates).
Concept map
Learn, apply, review
Definition
The Greeks measure sensitivities of option prices to various factors: Delta (price change), Gamma (Delta change), Theta (time decay), Vega (volatility), and Rho (interest rates).
Use case
Used in derivatives workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about The Greeks
Delta: Option price change per $1 stock move (0 to 1 for calls, -1 to 0 for puts). Gamma: Rate of Delta change — highest near expiration and at-the-money. Theta: Daily time decay — options lose value as expiration approaches. Vega: Sensitivity to implied volatility changes. Greeks enable precise risk management of options positions.
Example: Call option has Delta 0.60, Gamma 0.05, Theta -0.10, Vega 0.15. If stock rises $1, option gains ~$0.60. New Delta becomes 0.65. Each day passing costs $0.10. 1% volatility increase adds $0.15 to option value.