What You'll Learn
- • The five main Greeks and what they measure
- • How to read and interpret Greek values
- • Practical examples with real market scenarios
- • When to pay attention to each Greek
The Five Greeks Explained
Delta (Δ) - Price Sensitivity
What it measures: How much an option's price changes when the underlying stock moves $1.
Call Options: Delta ranges from 0 to 1
Put Options: Delta ranges from -1 to 0
Example: If SPY call has Delta 0.5 and SPY moves up $1, the option price increases by ~$0.50.
Gamma (Γ) - Delta's Rate of Change
What it measures: How much Delta changes when the underlying moves $1.
Key Points:
- • Highest for at-the-money options
- • Increases as expiration approaches
- • Always positive for both calls and puts
Why it matters: High Gamma means Delta changes rapidly - your position can become much more (or less) profitable quickly.
Theta (Θ) - Time Decay
What it measures: How much an option loses value each day due to time passing.
Time Decay Alert
Theta accelerates in the final weeks before expiration. Weekend and holidays also count!
Example: AAPL option with Theta -0.05 loses $5 in value each day (all else being equal).
Vega (ν) - Volatility Sensitivity
What it measures: How much an option's price changes when implied volatility changes by 1%.
Important: Vega affects both calls and puts the same way - higher volatility = higher option prices.
Trading Tip: Buy options when volatility is low, sell when it's high. Earnings announcements typically spike volatility.
Rho (ρ) - Interest Rate Sensitivity
What it measures: How much an option's price changes when interest rates change by 1%.
Reality Check: Rho is usually the least important Greek for most retail traders, especially for short-term options.
Putting It All Together
Real-World Example: SPY Call Option
Option: SPY $450 Call, 30 DTE
Current SPY Price: $445
Option Price: $2.50
Delta: 0.35
Gamma: 0.08
Theta: -0.04
Vega: 0.12
Key Takeaways
- Start with Delta: Understand how much your option moves with the stock
- Watch Theta daily: Time decay never stops, even on weekends
- Monitor Vega around events: Earnings, Fed meetings, etc.
- Use Gamma wisely: High Gamma = high risk/reward potential
Ready to Apply This Knowledge?
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