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If you have started learning options trading, you must have heard the term “Option Greeks.”
They may sound complicated, but in simple terms, Greeks are just numbers that tell you how an option’s price will move when market conditions change.
Think of Greeks as the “DNA of an option” — they explain why the price of an option is rising or falling, even when the stock itself hasn’t moved much.
In this article, we’ll cover the five key Greeks — Delta, Gamma, Theta, Vega, and Rho — in simple language, with examples that every retail trader can relate to.
1. Delta – Sensitivity to Stock Price
Delta tells you how much the option price will change if the stock moves by ₹1.
- Call Options have positive Delta (they gain when the stock goes up).
- Put Options have negative Delta (they gain when the stock goes down).
Example:
Infosys is at ₹1,600. You buy a 1,620 Call option with a Delta of 0.40.
- If Infosys rises by ₹10 → Option price will rise by ₹4 (0.40 × 10).
- If Infosys falls by ₹10 → Option price will drop by ₹4.
Takeaway: Delta is like the “gear” of your option — it tells you how fast the option will move compared to the stock.
2. Gamma – Speed of Delta
Gamma tells you how much the Delta will change if the stock moves by ₹1.
Why does this matter? Because Delta is not constant — it changes as the stock price moves. Gamma measures that rate of change.
Example:
Nifty is at 24,000. You have a Call option with Delta = 0.40 and Gamma = 0.05.
- If Nifty goes up by 100 points → Delta will increase by 0.05 × 100 = 5 points.
So new Delta = 0.45.
Takeaway: Gamma is like the “acceleration” of your option. Just like a car doesn’t stay at the same speed, your Delta changes as the market moves, and Gamma tells you how quickly it changes.
3. Theta – Time Decay
Theta tells you how much the option loses in value every day as time passes, all else being equal.
This is very important because options are wasting assets. Every day that passes, their value decreases.
Example:
Reliance 2,700 Call option has Theta = –5.
- Every day, the option will lose ₹5 in value (if the stock doesn’t move).
This is why option sellers love Theta — they collect premium that naturally decays over time. Option buyers, on the other hand, are fighting against time decay.
Takeaway: Theta is like a “rent meter” running against option buyers. If nothing happens, sellers win.
4. Vega – Sensitivity to Volatility
Vega tells you how much the option price will change if volatility (IV – implied volatility) changes by 1%.
When volatility rises (like during elections, budget, or global news), option prices increase. When volatility falls, option prices decrease.
Example:
Bank Nifty option premium = ₹200, Vega = 10.
- If IV rises by 1% → Option price increases to ₹210.
- If IV falls by 1% → Option price drops to ₹190.
This explains why sometimes, even if Nifty doesn’t move much, option premiums can jump — because volatility increased.
Takeaway: Vega is like the “mood swing” of the market. When fear or excitement rises, premiums inflate.
5. Rho – Sensitivity to Interest Rates
Rho measures how much the option price changes if interest rates move by 1%.
- Calls generally benefit from rising interest rates.
- Puts generally lose value when interest rates rise.
Example:
If Rho = 0.20, and RBI hikes interest rates by 1%, the option premium will increase by ₹0.20.
For most short-term traders, Rho doesn’t matter much because rate changes are infrequent. It’s more relevant for long-term options (LEAPS).
Takeaway: Rho is like a “background factor” — it matters for long-term contracts, not for weekly Nifty traders.
Putting It All Together – The Role of Greeks
- Delta = Direction (how much the option moves with stock).
- Gamma = Acceleration (how fast Delta changes).
- Theta = Time decay (how much value option loses daily).
- Vega = Volatility effect (how much option reacts to IV changes).
- Rho = Interest rate sensitivity (long-term effect).
Example in Action:
You buy a Nifty 24,000 Call.
- Delta = 0.50 → If Nifty rises 100 points, option rises about 50 points.
- Gamma = 0.02 → As Nifty rises, Delta itself will increase, so option becomes more sensitive.
- Theta = –10 → If Nifty doesn’t move, you lose ₹10 per day.
- Vega = 15 → If volatility rises by 1%, premium rises by ₹15.
Final Thoughts
Option Greeks may look technical at first, but they are the building blocks of professional options trading.
- Buyers should focus on Delta and Vega (direction and volatility).
- Sellers should focus on Theta (time decay) and manage Gamma risk (big market moves).
The key is to not memorize formulas but to understand the story Greeks tell about your option position.
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