The Greeks are a set of risk measures that describe how option prices change in response to various factors. Named after Greek letters (except Vega), they quantify sensitivity to underlying price movement (Delta), rate of delta change (Gamma), time decay (Theta), volatility changes (Vega), and interest rates (Rho). Understanding Greeks is essential for managing options risk.
- Delta: Price sensitivity to underlying
- Gamma: Rate of delta change
- Theta: Daily time decay
- Vega: Volatility sensitivity
The Five Main Greeks
Overview of each Greek’s meaning:
Greeks Summary:
Delta (Δ):
What: Price change per $1 underlying move
Range: -1 to +1
Example: Delta 0.50 = $0.50 per $1 move
Gamma (Γ):
What: How fast delta changes
Range: Always positive for long options
Example: Gamma 0.05 = delta changes 0.05 per $1
Theta (Θ):
What: Daily time decay in dollars
Range: Negative for long, positive for short
Example: Theta -0.10 = loses $10/day per contract
Vega (ν):
What: Price change per 1% IV change
Range: Positive for long options
Example: Vega 0.15 = $15 per 1% IV change
Rho (ρ):
What: Price change per 1% interest rate change
Range: Usually small impact
Example: Often ignored for short-term trades
Quick Reference: Greeks
| Greek | Measures | Long Option | Short Option |
|---|---|---|---|
| Delta | Direction | + (calls), - (puts) | Opposite |
| Gamma | Acceleration | Positive | Negative |
| Theta | Time decay | Negative (hurts) | Positive (helps) |
| Vega | Volatility | Positive (helps) | Negative (hurts) |
Example: Reading Greeks
ATM Call Option:
| Greek | Value | Meaning |
|---|---|---|
| Delta | 0.50 | Gains $50 per $1 stock rise (per contract) |
| Gamma | 0.05 | Delta becomes 0.55 if stock rises $1 |
| Theta | -0.08 | Loses $8 per day |
| Vega | 0.12 | Gains $12 per 1% IV increase |
The Greeks measure option risk. Delta shows profit per dollar move. Theta shows daily time decay. Vega shows volatility sensitivity. Gamma shows how fast delta changes. Use Greeks together to understand your total position risk.
Using Greeks Together
Directional Trading
Focus on Delta. Know your exposure per dollar move.
Income Strategies
Focus on Theta. Positive theta = daily income.
Earnings Plays
Focus on Vega. IV changes dominate around events.
Near Expiration
Focus on Gamma. Extreme delta swings possible.
Portfolio Greeks
Sum individual Greeks for net exposure:
| Position | Delta | Theta |
|---|---|---|
| Long 2 calls (+0.50) | +100 | -16 |
| Short 1 put (-0.30) | +30 | +8 |
| Portfolio | +130 | -8 |
Portfolio is bullish (positive delta) with slight time decay.
Greek Interactions
Delta + Gamma
Gamma tells you how delta will change with movement.
Theta + Vega
High vega often means high theta (more time value).
All Together
Complete picture needs all Greeks considered.
Common Mistakes
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Only watching delta – Theta and vega can dominate.
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Ignoring portfolio Greeks – Individual positions may offset.
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Not understanding gamma risk – Near expiration, gamma is huge.
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Forgetting vega before events – IV crush can override delta gains.
How JournalPlus Tracks Greeks
JournalPlus calculates and displays Greeks for each position and your portfolio, helping you understand risk exposure and make informed trading decisions.
