Options Greeks: What you should know The Greeks Delta...
Options Greeks: What you should know
The Greeks
Delta – An option’s delta is the rate of change of the price of the option with respect to its underlying security’s price. The delta of an option ranges in value from 0.0 – 1.00 for calls (0 to -1.00 for puts) and reflects the increase or decrease in the price of the option in response to a 1-point movement of the underlying asset price.
Used to measure the change in value of a contract from a $1 change. Also is used to measure the probability of an Option Contract Expiring “ITM” (In-The-Money). For Example, a Delta of 0.40 can be seen as a 40% chance to Expire ITM.
Gamma – An option’s Gamma is a measure of the rate of change of its delta. The gamma of an option is expressed as a percentage and reflects the change in the delta in response to a 1-point movement of the underlying stock price.
Measures the change in Delta from a 1$ movement in the underlying asset (stock, ETF, things like that). If the underlying moves an additional 1$ Then Delta would equal the Total of Delta + Gamma. After the First Dollar move, any additional moves in the same direction increases the value of Delta by the amount of Gamma.
For Example, XYZ 100 12/31/20 Call for $1.00 and has a delta of .50 and a gamma of .05.
The price of XYZ moves 1 dollar upwards so the new price of the contract becomes 1.50.
The Price of XYZ moves 1 dollar upwards again so now we add both Delta AND Gamma to find the new value. (1.00 + 0.50 = 1.50) 1.50 + (.50 + .05) = 2.05 Value now.
Theta – An option’s theta is a measurement of the option’s time decay. The theta measures the rate at which the options lose their value, specifically the time value, as the expiration date draws nearer. Generally expressed as a negative number, the theta of an option reflects the amount by which the option’s value will decrease every day.
For example, if your option contract is currently valued at 1.00 and you have a theta of -0.10, you will lose 0.10 worth of value off your contract every day. This number will change drastically throughout the day as will the other Greeks.
Vega – An option’s Vega is a measure of the impact of changes in the underlying volatility on the option price. Specifically, the Vega of an option expresses the change in the price of the option for every 1% change in the underlying volatility.
Estimates the change in premium for each 1% change in the Implied Volatility (IV). There will be higher Vega on Contracts with more time. An increase in Vega increases the cost of the contract and vice versa.
Rho – Rho measures the change in Interest rates but is rarely used since Interest rates do not move much.
It is important to remember that these numbers associated with each Greek will likely change constantly throughout the life of the contract. There are other variables to consider like Implied Volatility, Volume, Open Interest, Days to Expiration (dte), the P/c Ratio, upcoming catalysts, and much more.
This is a very basic run down of the Greeks. You will not learn everything about options overnight! Enjoy! check out our yourube channel by searching the word togethearn $Bionano Genomics(BNGO.US$ $AEterna Zentaris(AEZS.US$ $AMC Entertainment(AMC.US$ $GameStop(GME.US$ $Naked Brand Group Ltd(NAKD.US$ $Ideanomics(IDEX.US$ $SNDL Inc(SNDL.US$ $Tonix Pharmaceuticals(TNXP.US$ $Ocugen(OCGN.US$ $Zomedica(ZOM.US$ $Ideanomics(IDEX.US$
check out our youtube channel by searching togethearn :) 🚀
The Greeks
Delta – An option’s delta is the rate of change of the price of the option with respect to its underlying security’s price. The delta of an option ranges in value from 0.0 – 1.00 for calls (0 to -1.00 for puts) and reflects the increase or decrease in the price of the option in response to a 1-point movement of the underlying asset price.
Used to measure the change in value of a contract from a $1 change. Also is used to measure the probability of an Option Contract Expiring “ITM” (In-The-Money). For Example, a Delta of 0.40 can be seen as a 40% chance to Expire ITM.
Gamma – An option’s Gamma is a measure of the rate of change of its delta. The gamma of an option is expressed as a percentage and reflects the change in the delta in response to a 1-point movement of the underlying stock price.
Measures the change in Delta from a 1$ movement in the underlying asset (stock, ETF, things like that). If the underlying moves an additional 1$ Then Delta would equal the Total of Delta + Gamma. After the First Dollar move, any additional moves in the same direction increases the value of Delta by the amount of Gamma.
For Example, XYZ 100 12/31/20 Call for $1.00 and has a delta of .50 and a gamma of .05.
The price of XYZ moves 1 dollar upwards so the new price of the contract becomes 1.50.
The Price of XYZ moves 1 dollar upwards again so now we add both Delta AND Gamma to find the new value. (1.00 + 0.50 = 1.50) 1.50 + (.50 + .05) = 2.05 Value now.
Theta – An option’s theta is a measurement of the option’s time decay. The theta measures the rate at which the options lose their value, specifically the time value, as the expiration date draws nearer. Generally expressed as a negative number, the theta of an option reflects the amount by which the option’s value will decrease every day.
For example, if your option contract is currently valued at 1.00 and you have a theta of -0.10, you will lose 0.10 worth of value off your contract every day. This number will change drastically throughout the day as will the other Greeks.
Vega – An option’s Vega is a measure of the impact of changes in the underlying volatility on the option price. Specifically, the Vega of an option expresses the change in the price of the option for every 1% change in the underlying volatility.
Estimates the change in premium for each 1% change in the Implied Volatility (IV). There will be higher Vega on Contracts with more time. An increase in Vega increases the cost of the contract and vice versa.
Rho – Rho measures the change in Interest rates but is rarely used since Interest rates do not move much.
It is important to remember that these numbers associated with each Greek will likely change constantly throughout the life of the contract. There are other variables to consider like Implied Volatility, Volume, Open Interest, Days to Expiration (dte), the P/c Ratio, upcoming catalysts, and much more.
This is a very basic run down of the Greeks. You will not learn everything about options overnight! Enjoy! check out our yourube channel by searching the word togethearn $Bionano Genomics(BNGO.US$ $AEterna Zentaris(AEZS.US$ $AMC Entertainment(AMC.US$ $GameStop(GME.US$ $Naked Brand Group Ltd(NAKD.US$ $Ideanomics(IDEX.US$ $SNDL Inc(SNDL.US$ $Tonix Pharmaceuticals(TNXP.US$ $Ocugen(OCGN.US$ $Zomedica(ZOM.US$ $Ideanomics(IDEX.US$
check out our youtube channel by searching togethearn :) 🚀
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solarelectric1 : Thank you, Dude or Gal. Glad someone is on the little guys side.
OldNormanBates : One of These Days I Will Get It or Get Too Old To Do Options
cockNTail : just think you are leveraging the same stock you purchase and hold over time. the decay sucks but the more time you take on the option the odds get better and usually the price is much better when you sell. decay is the only drawback. quality stock with price action makes option more exciting. make a plan and stick to your plan. patience is the key
. You're never to old to do anything. upgrades and down grades with low float works well. just 2 of the indicators I use. 80 to 20 profit to losses for me.
OFFICER TRUTH OP : I provide ticker analysis at request :)
Just check out my YouTube channel it’s quick and to the point :) https://youtube.com/c/Togethearn