When trading options, the “Greeks” are essential tools that help you understand how an option’s price reacts to changes in the market.
Delta measures how much the price of an option is expected to move for every $1 change in the underlying asset. For example, a call option with a delta of 0.40 means the option’s price will rise approximately $0.40 if the stock rises by $1. Delta also hints at the probability of the option finishing in the money—so a 0.40 delta implies about a 40% chance.
Theta represents time decay. Options lose value as they approach expiration, especially if they are out-of-the-money. A theta of -0.05 means the option loses $0.05 in value each day, all else being equal. This is why selling options—especially short-dated ones—can be profitable: time is working in your favor. Gamma measures how much delta changes when the stock price moves. It helps predict how fast your position’s exposure (delta) is increasing or decreasing, particularly near the money.
Vega gauges how much the option price will change with a 1% change in implied volatility (IV). If vega is 0.10 and IV increases by 1%, the option price rises $0.10. High vega is beneficial for buyers during volatile times but a risk for sellers. Understanding these four Greeks gives you deeper control over your trades and risk management—especially when combining strategies like spreads or ladders.