Option Greeks-Introduction

If you have ever traded options, maybe this scenario is familiar to you: you bought a call when you thought a stock was going to go up but that call lose value when the stock did go up and you didn't know why? It is because the price of option is not affected only by change in price of underlying asset but also by the effects of time and volatility. Many of us can relate to this situation. The problem here is that an options price relies on more than one factor. With stock, you always make money when stock goes in desired direction, so this is one from the most important differences between stock and option.


The Greeks are the name given to a group of statistical references that describe and quantify risks to the variables that can effect the price of options. They describe how the price of options will change in different scenarios. I think that to know what risk you take is very important with every investment you make, it will help with making decisions whether or not to choose any given option.


Option Greeks are delta, theta, gamma, rho, vega, and omega. Each one of them measures some aspect of an option position's market risk-reward profile. This definition is true whether the position is a simple one involving one or perhaps a few different options or a more complicated position. I will explain the most important option Greeks for option trading later in my posts.