Delta is the variable that tracks the relationship between the change in the price of an underlying stock and the change in the value of the option contracts associated with it. Delta ranges in value from 0.00 on the low side, to a maximum of 1.00. An option with a Delta of 1.00 means that ...…
Gamma is one of the least understood but most powerful of the options Greeks. Gamma is the variable that tracks the rate of change of Delta. In the previous example, we compared Delta to horsepower. Keeping with that same example, Gamma is the acceleration or rate of change of the dragsters. How quickly can each ...…
Theta is used to track the rate of decay of the time value of an option. The time value of an option is the variable piece of the option’s value. Here’s an example: Suppose you identify a stock that is currently trading for $21.35 per share, and you decide to buy the $20 strike price ...…
Vega is the Greek letter used to track the change in an option’s theoretical value, given a 1% change in the volatility for the underlying stock. Here’s one way that we can actually make use of the information: let’s say there is sudden good news in a stock. When the news hits the wires, the ...…
As we discussed earlier, historical volatility is a useful measurement of the price movement of a stock over a given period of time. Historical volatility can be thought of as a sort of baseline standard for the price movement of a stock. The implied volatility, by contrast, is a kind of measurement of the expected ...…
Historical Volatility is a measurement of the price movement of the underlying stock over a 6-month period of time. This value can tell us what types of price fluctuations we could expect from a stock, helping us to identify stocks that fit our personal investment strategy. Highly volatile stocks are subject to wide, quick price ...…
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