Options Greeks

Delta (directional risk): Measures how much an option's price moves per $1 move in the underlying stock. A 0.50 delta call gains $0.50 when the stock rises $1. Delta ranges from 0 to 1 for calls and 0 to -1 for puts. At-the-money options have roughly 0.50 delta. Deep in-the-money options approach 1.0 delta (they behave like stock). Far out-of-the-money options have delta near 0. Delta also approximates the probability the option expires in-the-money — a 0.30 delta call has roughly a 30% chance of expiring profitably.

Gamma (delta acceleration): Measures how fast delta changes per $1 stock move. High gamma means delta is changing rapidly. At-the-money options near expiration have the highest gamma — their delta can swing from 0.30 to 0.70 with a small stock move. This makes short-dated ATM options the most explosive (and most dangerous). Gamma is highest for options with less than 7 days to expiration.

Theta (time decay): Measures how much value an option loses per day from the passage of time, all else equal. A theta of -0.05 means the option loses $0.05 per day. Theta accelerates as expiration approaches — an option loses more value in its last 30 days than in the preceding 60 days. Options sellers profit from theta; options buyers fight against it.

Vega (volatility sensitivity): Measures how much an option's price changes per 1% change in implied volatility. A vega of 0.10 means the option gains $0.10 if IV rises 1%. Longer-dated options have higher vega because there is more time for volatility to impact the outcome. Vega is critical around events like earnings — IV often rises into the event (helping option holders) and collapses after (IV crush).

Rho (interest rate sensitivity): Measures sensitivity to interest rate changes. Generally the least important Greek for short-term traders, but relevant for LEAPS (long-dated options over 6 months). Rising rates increase call values and decrease put values, all else equal.

Position sizing with delta: To control directional risk, think in "delta dollars." If you buy 10 calls with 0.50 delta on a $100 stock, your delta exposure is 10 x 100 x 0.50 x $100 = $50,000 — equivalent to holding $50,000 of stock. This helps you size options positions appropriately relative to your account.

Managing theta decay: If you buy options (long theta), choose strikes and expirations where theta is manageable. Options with 30-60 days to expiration have a good balance of time value and reasonable theta decay. Avoid holding long options into the final week unless you are speculating on a catalyst — theta decay accelerates dramatically.

Earnings trades with vega: Before earnings, IV rises (increasing option prices). After earnings, IV collapses (IV crush). If you buy options before earnings, you need the stock to move MORE than the implied move just to break even, because the IV crush will reduce your option's value. Selling options (strangles, iron condors) before earnings benefits from this IV crush.

Gamma risk near expiration: Short-dated ATM options have extreme gamma — delta can flip from 0.20 to 0.80 with a single price bar. Professional market makers track their "gamma exposure" carefully. As a retail trader, be cautious with options expiring within 3 days — the gamma makes position management difficult and losses can accelerate rapidly.

Portfolio-level Greeks: Sum up the Greeks across all your positions to understand your aggregate risk. If your total portfolio delta is +500, you have significant bullish exposure. If your total theta is -$50, your positions lose $50 per day from time decay. Professional options traders manage their portfolio Greeks to stay within predefined risk limits.

Bullish + positive theta (want time to pass): Sell puts or credit put spreads. You benefit from both upward price movement (delta) and time decay (theta). Best when IV is elevated.

Bullish + negative theta (need a move): Buy calls or debit call spreads. You need the stock to move up before theta erodes your position. Best when IV is low and you expect a catalyst.

Neutral + positive theta: Sell iron condors, strangles, or straddles. You profit from time passing and the stock staying within a range. You are short gamma and short vega — the risk is a large unexpected move.

Volatility play (long vega): Buy straddles or strangles when you expect IV to increase (before earnings, before major events). You profit if volatility expands regardless of direction. You are fighting theta, so timing matters.

Each strategy trades off between the Greeks. There is no free lunch — a position that profits from theta is exposed to gamma risk. A position that profits from delta movement is fighting theta. Understanding these tradeoffs is what separates profitable options traders from those who blow up.