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# OPTIONS GREEKS

Discuss OPTIONS GREEKS within the Financial Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; OPTIONS GREEKS The option Greeks are the tools that measure the sensitivity of the option price They Estimate the change ...

 OPTIONS GREEKS
Abhijeet S

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OPTIONS GREEKS - September 2nd, 2010

OPTIONS GREEKS
• The option Greeks are the tools that measure the sensitivity of the option price
• They Estimate the change in the option premium under various circumstances
• Determine the number of option needed in the event of hedging
• They are often used by professional traders for trading & managing the risk of large positions in options & stocks.

Delta:
• Delta is the ratio of change in the option price to a unit change in the underlying price.

• Measure the estimated change in the option premium for the change in asset price.

• ITM option have higher delta (0.8) while OTM option have lower delta (0.2)

Delta= Change in the Option Premium
Change in the Underlying Price

GAMMA:
• GAMMA is the ratio of change in the option delta to a unit change in the underlying price.

• If gamma is positive it indicates that the premium on option will rise more when stock prices rises & the premium on option will fall less when the stock price decreases.

Gamma = Change in the Option Delta
Change in the Underlying Price

Vega
• Vega is the ratio of change in the option price to a unit change in the volatility.

• Vega indicates how much change in the premium can be anticipated for a unit change in the volatility.

Vega = Change in the Option Premium
Change in the Underlying Volatility

Theta
• Theta is the ratio of change in the option price to a unit change in the time period.

• The more the passage of time, the lesser the value of an option.

Theta = Change in the Option Premium
Change in the Time period

Rho

Rho is the ratio of change in the option price to a unit change in the interest rate.

Rho = Change in the Option Premium
Change in the Interest

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