Options trading offers strategic opportunities beyond simple price movement. Unlike stocks, options are affected by time, volatility, interest rates, and other variables. To measure these effects and manage risks, traders use Option Greeks, which are essential tools for analysing option price sensitivity.
What Are Option Greeks?
Option Greeks are risk indicators that show how different factors impact an option’s price. Each Greek represents a specific aspect of risk:
- Delta (Δ) – Measures how much an option’s price changes with a 1-point move in the underlying asset.
- Gamma (Γ) – Tracks how fast Delta changes as the asset price fluctuates.
- Theta (Θ) – Represents time decay, showing how much an option loses value daily.
- Vega (ν) – Indicates an option’s sensitivity to changes in implied volatility.
- Rho (ρ) – Measures how interest rate changes affect option prices.
These Greeks help traders make informed decisions, manage risk, and refine their strategies.
Why Are Option Greeks Important?
Option pricing involves more than just predicting direction. Understanding Greeks allows traders to:
- Assess risk exposure — Analyze how changes in price, time, volatility, or rates affect options.
- Select suitable strategies — Match Greeks to specific market conditions and goals.
- Hedge positions — Offset risks in directional and neutral portfolios.
- Optimize performance — React to volatility spikes, time decay, and rate changes effectively.
📌 Example: A trader buying a Nifty 22,000 Call must account for Delta (price movement), Theta (daily decay), and Vega (volatility shifts), not just price direction.