Option

What Is Time Decay? Time decay is a measure of the rate of decline in the value of an options contract due to the passage of time. Time decay accelerates as an option’s time to expiration draws closer since there’s less time to …

What Are Greeks? “Greeks” is a term used in the options market to describe the different dimensions of risk involved in taking an options position. These variables are called Greeks because they are typically associated with Greek symbols. Each “Greek” …

What is Vega Vega is the measurement of an option’s price sensitivity to changes in the volatility of the underlying asset. Vega represents the amount that an option contract’s price changes in reaction to a 1% change in the implied volatility of the …

What is Gamma Gamma is the rate of change in an option’s delta per 1-point move in the underlying asset’s price. Gamma is an important measure of the convexity of a derivative’s value, in relation to the underlying. A delta hedge strategy seeks to reduce gamma …

What Is Delta? Delta is the ratio that compares the change in the price of an asset, usually marketable securities, to the corresponding change in the price of its derivative. For example, if a stock option has a delta value of 0.65, …

What Is Theta? The term theta refers to the rate of decline in the value of an option due to the passage of time. It can also be referred to as the time decay of an option. This means an option loses value as …

What Is “In the Money” (ITM)? “In the money” (ITM) is an expression that refers to an option that possesses intrinsic value. ITM thus indicates that an option has value in a strike price that is favorable in comparison to the …

What Is an Option Premium? An option premium is the current market price of an option contract. It is thus the income received by the seller (writer) of an option contract to another party. In-the-money option premiums are composed of two factors: …

What Is Out of the Money (OTM)? “Out of the money” (OTM) is an expression used to describe an option contract that only contains an extrinsic value. These options will have a delta of less than 50.0. An OTM call option …