Options Article

What is the role of Greeks in options trading, is it really helpful?

Last Updated: October 1, 2020

Article Summary

The Options Greeks are very helpful, they are essential to evaluate and understand the behavior and potential future behavior of the option contract or spread.

We also see it as the most added parameters to the Brutus Options Ranker.

Key Takeaways
Article

What is the role of Greeks in options trading, is it really helpful?

The most important Greek is likely Delta. It tells you how closely the option or option spread behaves like the underlying stock. It also provides a good estimate of what the probability is that the stock price will touch the strike price…. that’s a nifty little shortcut.

Here is a great way to remember the greeks and a short explanation of each:

Delta is the Difference you would see in the options price with a $1 move in the underlying stock.

Gamma is for the Gambling. I.e. if you are long gamma then you are gambling in hopes that the stock will move a lot and if you are short gamma you are gambling that the gamma doesn’t explode near expiration [sorry for this one - it doesn't match the pattern of the rest of the greeks ;)]

Vega is for how the option responds to changes in Volatility.

Theta is how the option changes in value as Time marches on.

RELATED READ  What’s the Difference Between Selling a Put and Buying a Call?

There’s of course more to learn, just remember for now:

Key Takeaway
Key Takeaway
Greeks in Options Trading

Delta is for Difference.

Gamma is for Gambling (speculation)

Vega is for Volatility, and

Theta is for Time Decay

Best of luck. May the Greeks be with you.

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