[Nitin Bhatia]

Different Types of Greeks in Terms of Importance
DELTA – The amount by which the price of an option changes as compared to a $1 increase in
the price of a stock expressed as a decimal or percentage.
THETA – The amount that the price of an option changes as compared to the passage of
time [typically 1 day], which is a negative number because the value of the option
decreases with time.
GAMMA- The amount that DELTA changes as compared to a $1 increase in the price of
the stock which may be important where the DELTA becomes particularly
sensitive to changes in the stock price.
VEGA – is the measure of volatility in the underlying stock, the amount the option price
changes with an increase in volatility.
RHO – the amount that the price of an option changes as compared to a unit increase in the
risk free rate (i.e., short term US Treasury Bill rate), the least important Greek because
most options are short term in nature and so interest costs are a smaller component of
the overall change in the option price.

1. Deltas are always positive, because there is a positive correlation between the price of a stock and the
option premium. The option premium price is directly related to the price of the stock [i.e., stock price
goes up, option premium goes up, and vice versa].
On the other hand, a put option premium has a negative correlation to the underlying stock price. If the
stock price goes up, then the value of the put should decline and vice versa.
The delta option varies between 0 and 1,the closer the delta is to 1, the more the option price will move
in tandem to the underlying stock price [typical of a deep in-the- money option ].

Because of changing options market conditions, deltas do not remain constant over time. Deltas are
calculated from dynamic inputs – stock price, time to expiration, volatility, current interest rate, and
strike price. When any of these inputs change it will have an impact on delta.
Moneyness or the degree to which the option is in or out-of-the money also has an effect on deltas.
As a rule of thumb, options that are in-the-money (ITM) have deltas greater than .50. On the other
hand, out-of-the money(OTM) options generally have deltas that are less than .50. The more in-the￾money the option, the closer the delta will be to 1. The more the option is out-of-the-money (OTM) the
closer the delta will be to 0. For options that are at-the-money(ATM), the delta should be fairly close to
.50 in which case the trading value is about the same for either a put or a call. However, this is a
theoretical result not often seen in practice — there are still some differences between the deltas even
when you are at-the-money. The more time until the expiration, the greater the difference between put
and call theoretical values. In most cases, the call will have a higher premium and delta than the
corresponding put values when ATM largely due to the interest rate and the time to expiration.

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