Becoming an Option Wizard
Delta and the other Greeks
Delta, the hedge ratio. Delta is the change in premium over change in the underlying. If a stock moves $1, the call or put $.50, the delta is .50. Identifies how many options you must sell to hedge an underlying position.
Gamma, the change in delta over change in the underlying. If a stock moves $1, the delta $.05, the gamma is .05.
Theta, is the rate of option decay, day to day, all other things being equal. Accelerates near expiration. Also in the exclusive Option Wizard price-time decay table.
Vega, how much option price changes per 1% change in volatility. If volatility changes by 1%, option changes by .20, vega is .20. Easy to toggle vega in Option Wizard for what-if regression analysis.
Rho, the rate of change of the value of an option with respect to the risk-free interest rate. Same easy toggle.
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