The Greeks measure how an option’s price changes when one input changes and the others stay the same. You do not need to calculate them yourself, since every broker shows them, but you do need to know what they are telling you.
Delta: sensitivity to price
Delta estimates how much the option price moves for a 1-point move in the underlying. Calls have delta between 0 and 1, puts between 0 and -1. A call with delta 0.50 should gain about 0.50 if the stock rises by 1. Delta is also a rough guide to the probability that the option expires in the money.
Gamma: how fast delta changes
Gamma measures how much delta changes for a 1-point move. It is highest for at-the-money options close to expiry, which is why short-dated options can swing from almost worthless to very valuable within hours.
Theta: the cost of time
Theta is the amount of value an option loses per day if nothing else changes. It is negative for buyers and works in favour of sellers. Time decay speeds up in the final weeks before expiry.
Vega: sensitivity to volatility
Vega shows how much the premium changes for a 1 percentage point change in implied volatility. Longer-dated options have more vega. If you buy options when implied volatility is high, a drop in volatility can hurt you even if you were right about direction.
Putting it together
- Buying options: you want a big, fast move (positive gamma) and you pay theta while you wait.
- Selling options: you collect theta, but you are short gamma and exposed to sudden moves.
- Check vega before an earnings release or major event, when implied volatility is usually inflated.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.