Option Profit Calculator

Option Profits Calculator

Option Greeks

Delta, Gamma, Theta, Rho, and Vega are the values most commonly referred to as the Greeks. These values are between -1 and 1. They illustrate how an option will respond to changes in market conditions.

Delta – The delta of an option can be thought of as the rate of change between the price of the option’s underlying and the price of the option. For example, if you have a delta of .35, then for every $1 the price of the underlying moves up, the price of the option will increase by $.35. Likewise, for every $1 the price of the underlying moves down, the price option will decrease by $.35.

Some mathematical ways to think of delta are as the rate of change, first derivative, or correlation.

Gamma – The gamma of an option can be thought of as the rate of change between the price of the option’s underlying and the delta. For example, a gamma of .03 implies that for every $1 the price of the underlying mvoes up, the delta of the option will increase by $.03. In effect, as a call option moves more in the money, the delta should approach 1, so that the option will increase by $.01 as the price of the underlying moves $.01.

Theta – The theta of the option can be thought of as the rate of change between the option price and time to expiration. As time to expiration decreases, the value of an option decreases. In effect, the option loses value as the buyer of an option loses the optionality over a period of time in which to profitably exercise an option. This is why exercising or selling a profitable purchased option prior to expiration is generally considered more profitable then allowing for automatic assignment of the option. Similarly, this is why, all else being equal, option sellers benefit as time passes.

Rho – Rho refers to the rate of change between the price of the option and the risk free interest rate. The risk free interest rate is generally considered to be the interest rate associated with US Treasury bonds.

Vega – Vega refers to the rate of change between the implied volatility of the option and the and the price of the option.