Back in November, I wrote a blog about the basics of Options, explaining the main concepts of how they work as well as the roles of the writer, the buyer, and the different type of options. If you need some brushing up on your options basics, don’t be afraid to check out that blog.
After you brush up on your basic option’s knowledge, we’ll focus on “The Greeks” and what they are to options trading.
Q: What are the Greeks?
A: The four famous Greeks are Vega, Theta, Delta, and Gamma and are used in options trading to describe risks associated with various options positions.
Every option has four main measurements of risk:
Vega is an Arabic word and is the brightest star in the constellation Lyra and one of the five brightest stars in the night sky. I honestly don’t know why Vega is one of the four Greeks of options trading, but it goes to show you that the stock market is illogical. Theta, Delta, and Gamma are letters of the Greek alphabet. A trader may want to take the four Greeks into account before entering into an options position.
(Big thanks to Investopedia for the info).
|Measures impact of change in volatility||Measures an impact of change in time remaining||Measures the impact of change in the underlying price||Measures the rate of change of the delta for each one point increase in the underlying asset|
When you see the term, “The Greeks” out in the stock trading world, you will now know they’re not talking about four dark-haired guys, but instead, risk measures related to Options Trading.
If you currently trade options, use The Greeks wisely. If you’re like me, I’ll be trading options when I get a clearer understanding. Knowing the Greeks will help us get there.
Many happy returns,