"Greeks" is a term used in the options market to describe the different dimensions of risk involved in taking an options position. These variables are called Greeks because they are typically associated with Greek symbols. Each "Greek" variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Traders use different Greek values, such as delta, theta, and others, to assess options risk and manage option portfolios.
Delta
Delta (Δ) represents the rate of change between the option's price and a Rs.100 change in the underlying asset's price. In other words, the price sensitivity of the option is relative to the underlying asset. Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one. For example, assume an investor is long a call option with a delta of 0.50. Therefore, if the underlying stock increases by Rs.100, the option's price would theoretically increase by 50 Rupees.
Theta
Theta (Θ) represents the rate of change between the option price and time, or time sensitivity - sometimes known as an option's time decay. Theta indicates the amount an option's price would decrease as the time to expiration decreases, all else equal. For example, assume an investor is long an option with a theta of -0.50. The option's price would decrease by Rs.50 every day that passes, all else being equal.
Gamma
Gamma measures the rate of changes in delta over time. Since delta values are constantly changing with the underlying asset's price, gamma is used to measure the rate of change and provide traders with an idea of what to expect in the future. Gamma values are highest for at-the-money options and lowest for those deep in- or out-of-the-money.
