Greeks

• Delta is always between -1 and 1 (between 0 to 1 for calls and -1 to 0 for puts)

• Put option's delta is always negative (think of it as because you want the put option price to go down)

• The further OTM of an option, the delta magnitude of delta becomes less and less. (Further away from current market, the lesser a big move has on your profit margin, less impact it has)

• Grows as option moves ITM and shrinks as option moves further OTM

• Can be interpreted as the % chance of expiring ITM (e.g. Delta of 0.4 can be thought of as 40% of the option expiring ITM). Hence -1/1 shows that the option is very much ITM.

For a call option, you want the underlying to increase so the option is worth more

For a put option, you want the underlying to decrease so the option is worth more

Analogy: Think of Delta is your speed, while Gamma is your acceleration

• Always negative

• Always working against you as an option buyer, but not as an option seller (ie Theta works in advantage of option sellers)

• Theta is bigger for those that are closer to the current strike price

• Theta (and other greeks) are not a fixed figure, as options are priced ultimately by demand and supply

• Rate of theta decay accelerates nearing expiry

Current Underlying Price: $45

Day 1: Stock moves up by $1 to $46

1. Premium increases by $0.35 (due to delta) to $1.65

2. Decreases by $0.02 (due to theta). End of day price is $1.63

Day 2: Stock moves up by $1 to $47, IV increases by 1%

1. Premium increases by $0.35 (delta) + $0.06 (gamma) to $2.04

2. Decreases by $0..02 to $2.02 (due to theta)

3. Increases by $0.07 due to (vega). End of day price is $2.09

What if it is a Put Option (Delta is negative)?

Assuming option price is at $0.95 after day 1

Day 2: Stock moves up by another $1 to $47, IV increases by 1%

1. Premium decrease by $-0.35 (delta) + $0.06 (gamma) to $0.66

2. Increases by $0.07 due to (vega). End of day price is $0.73

3. New delta is $-0.35 +0.06 = $-0.29

Assumption on Day 1: No change in IV