The Greeks (Option Pricing Metrics)

Category: science

Mathematical variables that measure the sensitivity of an option’s price to various underlying market factors.

Options traders use "The Greeks" to hedge risk. Delta measures sensitivity to stock price changes, Gamma measures the rate of Delta change, Theta measures "time decay" (the daily loss of value as the expiration date approaches), and Vega measures sensitivity to changes in market volatility.

Common Examples

• We adjusted our hedge by monitoring Theta, knowing that the option’s time value would vanish rapidly as we approached the Friday expiration.
• High Gamma risk means the portfolio’s directional exposure changes violently with small movements in the underlying stock price.