Option Greeks Basics

Introduction

Option premiums move for many reasons: price changes, time passing and changes in volatility. The option Greeks are simple measures that tell you how much the premium is likely to change because of each factor. You do not need complex maths to use them.

1. Delta: Sensitivity to Price

Delta tells you how much the option premium changes when the underlying moves by 1 point.

• Call delta is between 0 and 1. Put delta is between 0 and -1.
• ATM options have a delta of about 0.5 (calls) or -0.5 (puts).
• Deep ITM options have delta close to 1; deep OTM options close to 0.

Example: A Nifty call has delta 0.5. If Nifty rises 100 points, the call premium rises about 50 points.

2. Gamma: Change in Delta

Gamma tells you how fast delta changes as the price moves. It is highest for ATM options near expiry. High gamma means premiums can jump very quickly, which is why expiry-day moves can be dramatic.

3. Theta: Time Decay

Theta tells you how much premium the option loses each day, if nothing else changes. It is negative for buyers.

Example: A call has theta of -8. If Nifty does not move, the premium falls by about Rs 8 each day. Theta becomes larger as expiry comes closer.

4. Vega: Sensitivity to Volatility

Vega tells you how much the premium changes when implied volatility (IV) changes by 1%.

Example: A call has vega of 5. If IV rises by 2% before an event, the premium rises by about Rs 10, even if the price does not move. After the event, when IV falls, the premium drops.

Putting It Together (Illustrative)

You buy an ATM Nifty call at Rs 150 with delta 0.5, theta -10 and vega 6. Over two days:

• Nifty rises 60 points: +30 (delta effect)
• Two days pass: -20 (theta effect)
• IV falls 1%: -6 (vega effect)
• New premium is about 150 + 30 - 20 - 6 = Rs 154

Even though Nifty rose, the profit is small because time decay and falling volatility worked against you.

How Beginners Should Use Greeks

• Use delta to understand how much the option will move with the price.
• Watch theta to know how much you lose each day by holding.
• Check vega before events; avoid buying when volatility is very high.

On GoPocket

When you look at options on the GoPocket app, compare premiums of ATM, ITM and OTM strikes as Nifty moves during the day. You will see that ITM options move almost like the index (high delta), while far OTM options barely move (low delta).

Key Takeaways

• Delta: price sensitivity. Gamma: change in delta.
• Theta: daily time decay. Vega: volatility sensitivity.
• Greeks explain why a premium may fall even when you are right on direction.

Disclaimer: Illustrative numbers for learning.