The Greeks

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The Greeks

Delta - Θ measures the rate of change of option value with respect to changes in the underlying asset's price. It is also called the hedge ratio

For example:
Suppose there is a call option with a delta of 25% and the underlying stock increases in value by 100 fils. 100 x 25% = 25. Thus, your option increases in value by 25 fils! If the stock fell by a 100 fils instead of gaining, you would lose 25 fils.

The delta is an increasing function of the underlying asset price. It reaches 50% when the price of the stock equals the strike price (at-the-money) and 100% for deep in-the-money options.

Gamma  - Γ measures the rate of change in the delta with respect to changes in the underlying price. Gamma is a very important as it corrects for the convexity of value. At-the-money options have the highest gammas. Gamma decreases as you go in-the-money or out-of-the-money.

Rho - ρ measures sensitivity to the applicable interest rate. Except under extreme circumstances, the value of an option is least sensitive to changes in the risk-free-interest rates. For this reason, rho is the least used of the primary Greeks

Theta - Θ, or "time decay", measures sensitivity of the value of an option to the passage of time. The extrinsic value of an option is equal to its intrinsic value plus the time value of holding the option. Options are a decaying asset and thus lose value as time passes. Theta measures how much this extrinsic value is whittled away by the decaying effect of time.

Call option

U/L Stock

Expiration Date

Strike Price

Market Price

Ask Price

Bid Price


(1 month Cycle)








(3 month Cycle )








(6 Months Cycle)







We notice that the premium for the first option (56 Fils) is less than the option expiry after 3 months (109 Fils). The premium for the option expiry after 3 months (109 Fils) is lesser than the option expiry after 6 months (163 Fils). This is logical as the longer the life of the premium, the more probability of profit-making and consequently the option buyer pays a higher amount for that option.

Note: Theta does not reduce an option's value at an even rate.  If a put option of XYZ stock is worth 100 fils, has 20 days until expiration and has a theta of -1.5. If one day passes, and the price of XYZ stock doesn't change, and there is no change in the implied volatility as well, the value of the XYZ put will drop to 98.5 fils.

Vega - measures sensitivity to volatility. When we buy an option, we are essentially buying or going long volatility. Thus, the more a stock moves the higher the option price.