"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 is a measure of how closely the movement of an individual stock tracks the movement of the entire stock market.
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.
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.
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.
A measure of leverage. The expected percent change inthe value of an option for a 1 percent change in the value of theunderlying product.
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.
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.
(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."
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