What are the Greeks?
The "Greeks" are risk metrics that measure how an option's price behaves with changes in various factors. They're called Greeks because they're denoted by Greek letters: Delta (Δ), Gamma (Γ), Theta (Θ), Vega (V), and Rho (ρ).
Why are the Greeks important?
The Greeks help you understand how your option position responds to market changes. Without Greeks you're trading blind – with Greeks you have full control over your risks and opportunities.
ΔDelta: Directional Sensitivity
Delta measures how much the option price changes when the underlying asset moves by €1.
Call-Optionen
Delta range: 0 bis +1.0
Example: Delta = 0.70
→ If stock rises €1, option rises €0.70
Delta values:
- • ITM Call: 0.70 - 1.0
- • ATM Call: ~0.50
- • OTM Call: 0.0 - 0.30
Put-Optionen
Delta range: -1.0 bis 0
Example: Delta = -0.65
→ If stock falls €1, option rises €0.65
Delta values:
- • ITM Put: -0.70 bis -1.0
- • ATM Put: ~-0.50
- • OTM Put: 0.0 bis -0.30
Delta as Probability
Delta can also be interpreted as approximate probability that the option expires in-the-money (ITM). A call with delta 0.70 has about 70% chance to end ITM.
ΓGamma: The Acceleration
Gamma measures how fast Delta changes when the underlying moves. It's essentially the "acceleration" of your option.
Practical Example
Start:
Aktienkurs: 100€
Delta: 0.50
Gamma: 0.05
Stock rises:
Aktienkurs: 101€
New Delta: 0.55
(0.50 + 0.05)
Stock rises more:
Aktienkurs: 102€
New Delta: 0.60
(0.55 + 0.05)
High Gamma (ATM Options)
- ▸Delta changes quickly
- ▸Higher risk and reward
- ▸Good for traders
Low Gamma (ITM/OTM)
- ▸Delta changes slowly
- ▸More stable positions
- ▸Good for hedging
ΘTheta: Time Decay
Theta measures how much value an option loses per day – purely due to time passing.
Time Decay Visualized
Example: Call option with Theta = -0.05
* Assuming all other factors remain constant
Exploit Theta
Sell options (covered calls, credit spreads):
- ▸Theta works FOR you
- ▸Earn money daily
- ▸Ideal at high IV
Fight Theta
When you buy options (long calls/puts):
- ▸Theta works AGAINST you
- ▸Consider time pressure
- ▸Buy at low IV
Important: Theta Acceleration
Theta accelerates dramatically in the last 30 days before expiration! At-the-money options lose value fastest in the final weeks.
VVega: Volatility Sensitivity
Vega measures how much the option price changes when implied volatility (IV) rises or falls by 1%.
Vega in Action
Scenario: Call option with Vega = 0.20
IV rises 10%
Current price: 5,00€
IV increase: 30% → 40%
New price: 7,00€ (+2€)
IV falls 10%
Current price: 5,00€
IV decrease: 40% → 30%
New price: 3,00€ (-2€)
At High IV (IV Rank > 50%)
Options are expensive due to high volatility expectations:
- ▸Strategy: Sell options
- ▸Profit: When IV returns to normal
- ▸Example: Sell before earnings
At Low IV (IV Rank < 50%)
Options are cheap, volatility could rise:
- ▸Strategy: Buy options
- ▸Profit: From IV increase + price movement
- ▸Example: Buy in calm markets
Using Greeks Together
The real power lies in considering all Greeks together:
Example: Earnings Trade
Situation Before Earnings
Delta: 0.50
Neutral
Gamma: 0.08
High (ATM)
Theta: -0.10
Fast decay
Vega: 0.25
Very high
Sell Options:
- ▸ Profit from high Vega
- ▸ Collect high premiums
- ▸ After earnings: IV drops (IV crush)
- ▸ Theta works for you
Buy Options:
- ▸ Risky at high IV
- ▸ High cost due to Vega
- ▸ IV crush hurts
- ▸ Theta works against you
Quick Reference: The Greeks
| Greek | Measures | Buyers Want | Sellers Want |
|---|---|---|---|
| Delta (Δ) | Price movement | High delta | Low delta |
| Gamma (Γ) | Delta change | High gamma | Low gamma |
| Theta (Θ) | Time decay | Low theta | High theta |
| Vega (V) | IV change | IV rises | IV falls |
Master the Greeks!
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Start NowRisk Warning: Understanding the Greeks is important but doesn't guarantee profits. Options trading carries significant risks and can result in total loss. This information is for educational purposes only.