The Greeks
The Greeks
"The Greeks" are a collection of statistical values (expressedas percentages) that give the investor a better overall view of how astock has been performing. These statistical values can be helpful indeciding what options strategies are best to use.
The investor should remember that statistics show trends based on pastperformance. It is not guaranteed that the future performance of thestock will behave according to the historical numbers. These trends canchange drastically based on new stock performance.
Beta
Beta is a measure of how closely the movement of an individual stock tracks the movement of the entire stock market.
Delta
Delta is a measure of the relationship between anoption price and the underlying stock price. For a call option, a Deltaof .50 means a half-point rise in premium for every dollar that thestock goes up. For a put option contract, the premium rises as stockprices fall. As options near expiration, in the money contractsapproach a Delta of 1.
Delta Measure
In this example the delta for stock XYZ is 0.50. As the price of thestock changes by $2.00 the price of the options will change by 50 centsfor every dollar. Therefore the price of the options will change by(.50 x 2) = 1.00.
The call options will have their price increased by$1.00 and the put options will have their price decreased by $1.00. TheDelta is not a fixed percentage. Changes in price of stock and time toexpiration will have an effect on the delta value.
Gamma
The sensitivity of Delta to a unit change in theunderlying. Gamma indicates an absolute change in Delta. For example, aGamma change of 0.150 indicates the delta will increase by 0.150 if theunderlying price increases or decreases by 1.0. Results may not beexact due to rounding.
Lambda
A measure of leverage. The expected percent change inthe value of an option for a 1 percent change in the value of theunderlying product.
Rho
Sensitivity of option value to change in interest rate. Rhoindicates the absolute change in option value for a one percent changein the interest rate. For example, a Rho of .060 indicates the option'stheoretical value will increase by .060 if the interest rate isdecreased by 1.0. Results may not be exact due to rounding.
Theta
Sensitivity of option value to change in time. Thetaindicates an absolute change in the option value for a 'one unit'reduction in time to expiration. The Option Calculator assumes 'oneunit' of time is 7 days.
For example, a theta of -250 indicates theoption's theoretical value will change by -.250 if the days toexpiration is reduced by 7. Results may not be exact due to rounding.NOTE: 7 day Theta changes to 1 day Theta if days to expiration is 7 orless.
Vega
(a.k.a. - kappa, omega, tau): Sensitivity of option value to a changein volatility. Vega indicates an absolute change in option value for aone percent change in volatility. For example, a Vega of .090 indicatesan absolute change in the option's theoretical value will increase by.090 if the volatility percentage is increased by 1.0 or decreased by.090 if the volatility percentage is decreased by 1.0. Results may notbe exact due to rounding."
About The Options Industry Council
The Options Industry Council (OIC) was created in 1992 to educate investors and their financial advisors about the benefits and risks of exchange-traded equity options. Today, its sponsors include the American Stock Exchange, the Boston Options Exchange, the Chicago Board Options Exchange, the International Securities Exchange, NYSE Arca, the Philadelphia Stock Exchange and The Options Clearing Corporation. Our experienced options seminar instructors provide valuable insight on the challenges and successes that individual investors encounter when trading options. In addition, options industry professionals have created the content in our software, brochures and Web site. Appropriate compliance and legal staff ensure that all OIC-produced information includes a balance of the benefits and risks of options.
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