Greeks
Delta, Gamma, Vega, and Theta.
The factors that influence the price of an option are referred to as the "Greeks". These are a set of risk measures that indicate how exposed an option is to time-value decay, implied volatility and changes in the underlying price of the asset.
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Greeks assist trades to estimate their risk when trading options. Understanding the Greeks gives traders an idea of the expected behaviour of an option. For example,
- How will the value of the option change as the stock price changes? (Delta)
- What is the probability of the option expiring in-the-money/out-of-the-money? (Delta)
- What effect will a change in the stock's volatility have on the option value? (Vega)
- How fast will the option lose value as it approaches expiration? (Theta)
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