The Greeks: A Risk Dashboard — Concept Explainer Video

Transcript

An option has several moving parts

An option price can change even when the stock barely moves. The Greeks help separate those drivers. They are local model sensitivities: estimates of how value or exposure changes when one input moves and the others are held fixed.

Direction and changing direction

Delta measures the option price response to a small underlying move. Gamma measures how delta changes as the underlying moves. Think of delta as directional sensitivity and gamma as the way that sensitivity changes along the journey.

The clock and uncertainty

Theta estimates the effect of time passing. Vega estimates the effect of implied volatility changing. Rho estimates the effect of interest rates changing. Always check the quoted units: theta is often per day, while vega and rho are often per percentage point.

Turn a quote into position exposure

A long call with delta point five and a one hundred share multiplier has about fifty share equivalents of delta. Two such calls have about one hundred. Selling reverses the position sign. Add compatible exposures, and keep different underlyings separate.

A dashboard needs refreshing

Greeks change as price, time, and volatility change. A single Greek cannot describe every outcome, and large moves make a simple linear estimate less reliable. Read the dashboard together, then refresh it as the position changes.