Option Greeks are a set of measurements that are used to determine the sensitivity of an option’s price to various factors such as volatility, time, and interest rates. These measurements, which include Delta, Gamma, Theta, Vega, and Rho, are used to help traders understand how changes in these factors will affect the price of an option.
Delta: It measures how much the price of an option will change for every one-point change in the price of the underlying asset. A high Delta indicates that the option’s price will move significantly in relation to the underlying asset, while a low Delta indicates that the price of the option will not move as much.
Gamma: It measures how much the Delta of an option will change for every one-point change in the price of the underlying asset. A high Gamma indicates that the option’s Delta will change rapidly, while a low Gamma indicates that the Delta will change slowly.
Theta: It measures the time decay of an option, or how much the price of an option will decrease as the expiration date approaches. A high Theta indicates that the option will expire quickly, while a low Theta indicates that the option will expire slowly.
Vega: It measure the option’s sensitivity to volatility. A high Vega indicates that the option’s price will change significantly with changes in volatility, while a low Vega indicates that the option’s price will not change much with changes in volatility.
Rho: This measures the option’s sensitivity to interest rates. A high Rho indicates that the option’s price will change significantly with changes in interest rates, while a low Rho indicates that the option’s price will not change much with changes in interest rates.