Options Trading Essentials: Understanding the Options Greeks

Welcome back to moomoo! This is Options Explorer, and in today's episode of [Options Notes], we're diving deep into the world of options trading to decode the mysteries of the Greeks.

It measures the degree to which an option's price will move in relation to a 1 unit change in the stock price.

Delta is typically utilized in two key ways: for hedging purposes and for calculating leverage in options trading.

It represents the change in Delta value caused by changes in the underlying asset price. It measures how much the Delta will change in response to a 1 unit change in the stock price.

As such, Gamma can potentially be used to gauge the complexity of hedging risk. A higher Gamma value indicates that the option's Delta is more sensitive to changes in the underlying asset price, making it more challenging to hedge against potential losses.

It is calculated as the amount of change in an option's price for every 1% change in implied volatility and is expressed in dollars.

Assuming other factors remain constant, generally, as the stock price volatility increases, the option price also increases.

Theta is a measure of the impact of time value decay on options prices.

Assuming that other factors remain constant, as the expiration date approaches, the rate at which the option's time value decays generally increases, causing the option price to decrease at a faster pace.

It measures the degree to which an option's price will move in relation to a 1% change in the interest rate.

However, since interest rates tend to remain stable for prolonged periods, Rho typically has a limited impact on option prices overall.