Number of words in this post: 161

Delta:

$$\Delta$$ measures the sensitivity of an option price change in relation to the changes in the underlying stock price. $$\Delta = \frac{\partial V}{\partial S}$$ , where $$V$$ is the option price, and $$S$$ is the underlying stock price. Call Delta range: $$[0, 1]$$. Put Delta range: $$[-1, 0]$$. The closer Delta is to +1 or -1, the more strongly that the option's premium responds to the change in the stock price.

Gamma:

$$\Gamma = \frac{\partial \Delta}{\partial S} = \frac{\partial^2 V}{\partial^2 S}$$ Gamma is the rate of change of an option’s Delta over its underlying stock price. High Gamma means a dramatic Delta change with even a small stock price change. Options have the greatest Gamma value when it is At-the-money.

Theta:

$$\Theta = - \frac{\partial V}{\partial \tau}$$ Time decay.

Vega:

$$\nu = \frac{\partial V}{\partial \sigma}$$ , where $$\sigma$$ is the volatility of the underlying stock. Vega measures the option sensitivity to $$\sigma$$.

tags: option