| A | B |
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| Delta | measures the rate of change of an option’s value in relation to changes in the price of the underlying asset |
| Gamma | measures the rate of change in the delta in relation to changes in the underlying asset’s price. |
| Lambda or elasticity | relates to the percentile variation in an option’s value compared with the percentile variation in the underlying asset’s price. |
| Lambda | This offers a means of calculating Leverage, which may also be referred to as gearing. |
| Gearing | refers to a means of calculating leverage |
| Theta | calculates the sensitivity of the value of the option to the passing of Time, a factor knows as “time decay.” |
| Theta | refers to Time, a factor known as “time decay.” |
| Vega | is the measure of the option’s worth in regard to the Volatility of the underlying asset. |
| Implied Volatility (IV) | as it increases (Vega) an option’s price will increase to compensate for the higher probability of being ITM at expiration. This is why we SELL options when IV is high and BUY options when IV is low. |
| Rho | appraises reactivity of the option value to the interest Rate: it is the measure of the option value with respect to the risk-free interest rate |
| Delta | is the amount an option price is expected to move based on a $1 change in the underlying stock. |
| CALLS | have positive delta, meaning they will increase in value if the stock rises. |
| PUTS | have negative delta and decrease in value if the stock rises. |
| CALLS | will have a delta between 0 and 100 |
| PUTS | will have a delta between 0 and -100 |
| Deep Out-Of-The-Money Options | have a delta near zero |
| At-The-Money Options | have a delta around +/- 50 |
| Deep In-The-Money Options | have a delta near 100 or -100 |
| Vega | is the amount that call and put prices will change, in theory, for a corresponding one-point change in implied volatility. |
| As implied volatility increases | the value of options will increase |
| As IV increases & the value of option increases | This is good for option buyers and bad for option sellers |
| An increase in IV | suggests an increased range of potential movement for the stock |
| If your Vega exposure is +200 | your position will increase in value by approximately $200 for each 1% rise in implied volatility. |
| Theta | is the amount the price of CALLS & PUTS will decrease for a one-day change in the time to expiration |
| Theta | is also referred to as time decay. |
| Options | are a decaying asset. Each day that passes will see an option’s price decrease (all other things being equal). |
| Option SELLERS | try to take advantage of this time decay. |
| Time Decay | works against option buyers. |
| The rate of time decay | speeds up as an option approaches expiry. |
| Because time-decay speeds up as an option approaches expiry | selling weekly options has become a popular strategy |
| Selling Weekly Options | is risky |
| Gamma | is the rate that delta will change based on a $1 change in the stock price. |
| if Delta is the “speed” at which option prices change | Gamma is the “acceleration.” |
| Basically, if you’re an option buyer | you are long gamma, and you want the stock to make a big move. |
| If you’re an option seller | you are short gamma, & you want the stock to stay steady |
| Rho | is the amount an option value will change based on a one percentage point change in interest rates |
| Rho | is the least important of the five Greeks |
| Think about rho | if you are trading longer term options like LEAPS. |
| If interest rates go up | option prices will go up due to the new higher cost of carry |
| LEAPS | are long-term options. |
| Implied Volatility | (1) usually increases in bearish markets and decreases when the mkt is bullish |
| Intrinsic Value | the amount by which the option is in the money |
| Time Value | (1) the difference between whatever intrinsic value is and what the premium is (2) the longer the amount of time for market conditions to work to your benefit, the greater the time value |
| Share MKT Price | minus Exercise price equals intrinsic value |
| Premium | minus intrinsic value equals time value |
| Greek Letters | terms that estimate CHANGES in prices of options as various MKT factors -- such as stock prices and time to expiration |
| Beta | (1) a measure of how a stock's volatility changes in relation to the overall mkt (2) may help you determine how closely a stock in your portfolio tracks the movement of an index |
| Hedging with Index Options | a beta of 1.5 means a stock gains 1.5 points for every point the index gains and loses 1.5 points for every point the index loses |
| Alpha | a measure of how a stock performs in relation to a benchmark, independent of its beta |
| A positive Alpha | a positive alpha means that the stock outperformed what the beta predicted |
| A Negative Alpha | means the stock didn't perform as well as predicted |
| The Delta of an Option | varies over the life of that option, depending on the underlying stock price and the amount of time left until expiration |
| when the underlying stock price changes | delta measures how much an option price changes |
| Example of a CALL Delta | a value of 0.5 means that for every dollar increase in the stock price, the CALL PREMIUM increases 50 cents |
| A Negative CALL Delta | a value of -0.5 means that for every dollar increase in the stock price, the PUT PREMIUM would be expected to drop by 50 cents |
| Delta between 0 & -1 | refers to a PUT option, since Put premiums fall as stock price increases |
| Greek Theta | the rate at which premium decays per unit of time as expiration nears |
