Options Basics

Overview of Option Greeks

Option greeks measure the options sensitivity to various risk components inherent to the price of an option. These measure include the speed of the underlying securities price movement, interest rate movement, time decay of an option, and volatility.

Delta and Gamma measure the options sensitivity to the speed of price changes in the underlying security, Rho measures the options interest rate sensitivity, Theta measures the change in the options price due to a change in the time left till expiration on the option, and Vega measures the change in the options price due to changes in the options historical volatility.

What is an Option?

An option can be defined as the right to buy or sell an asset at a fixed, predetermined price before a predetermined date. Buying options gives the buyer the right to buy (call option) or sell (put option) a stock at a specific price for a specified period of time. Let's be clear here, the buyer of this option is not obligated to buy or sell anything, an option is just that; it gives you the right.