The Greek Letters are used to measure the sensibility of a Stock Option’s price to various parameters. The parameters include, Stock Price, Volatility, Time to Expiration and Interest Rates.
To explain the sensibilities in the value of Stock Option Contracts, the various Greek letters Delta, Gamma, Vega, Theta and Rho are used. The objective is to explain the change in an Options Price, Puts and Calls, as the Stock Price changes. If an Options Strategy is employed either to manage portfolio risk or leverage a Stock Portfolio, an understanding and analysis of the Greeks is essential. Collectively the Greeks will determine an Option’s sensibility to the Stock Price, Volatility of the Stock Price, Time to Expiration and Interest Rates.
To review each Greek individually in terms of Dependent and Independent Variable.
Greek Depends on Due to
Delta – Change in Option Price Stock Price
Gamma – Change in Delta Stock Price
Vega – Change in Option Price Volatility
Theta – Change in Option Price Time to Expiration
Rho – Change in Option Price Interest Rates
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