Option Greek Letters

The option Greeks gives a relationship between options price and the factors influencing it. It is called by the name option Greeks because it is represented by the Greek words.  It is usually represented by Greek words. Various words will be used for various market factors.

The Greek letter delta Δ is used to show the relationship between the fluctuations in the option price with the variation in the market price of the stock. The Greek letter theta (Θ) is used to show the relationship between the variations in the option price with the passage of time. The Greek letter Vega (v) is used to show the relationship between the fluctuations in the option price variations with the variation in the volatility. The Greek letter rho (ρ) is used to show the relationship between the fluctuations in the option price with the variation in the interest rate. The above categories are termed as First order derivatives. There are second order derivatives and third order derivatives based on derivatives that they deal with.

Traders uses the option greek to analyze the risk involved in particular option. The option greek gives various information regarding the fluctuation in price of the option premium with regards to the fluctuation in the marketing condition. The sensitivity of the option premium to the marketing sensitivity is given by option greek.It is a general misconception that the change in the market price affects the option premium in the same manner through out the entire period of time, how ever that was not true. The fluctuation in the price of the option varies with the time period. The fluctuation will be maximum seen when there is more time before expiry, whereas the fluctuation will be less as the time period for expiry reduces.

The usage of the option greek depends upon the situation. The traders who trade on individual stock option or index option uses delta, this is because they need to identify the most efficient stock option. Traders those who trade option based on straddles and strangles uses delta, theta, vega and gamma. Traders those who make option trade based on some exotic decision uses all the above mentioned option greeks. Option greek thus helps the investor in making investment regarding the purchase of option at the current premium level.