Options Greeks are key metrics that help traders understand how the price of an option is expected to change in response to different market factors. They provide insight into how an option’s value reacts to movements in the underlying asset, time decay, and volatility.
Overview
In short, Greeks are risk measures: they help traders assess how sensitive an option position is to changes in market conditions.
On Kyan, you’ll see several core Greeks when trading options: Delta, Gamma, Vega, Theta, and Rho. Each plays a different role in evaluating risk and strategy.
Delta (Δ) — Sensitivity to Price Changes
Delta measures how much the price of an option is expected to change for every $1 move in the underlying asset (e.g., BTC, ETH).
A call option has a positive Delta (between 0 and 1), meaning its value increases as the underlying price rises.
A put option has a negative Delta (between 0 and –1), meaning its value increases as the underlying price falls.
Example:
If a BTC call option has a Delta of 0.6 and BTC rises by $1,000, the option’s price is expected to rise by roughly $600.
Gamma (Γ) — Sensitivity of Delta
Gamma measures how much Delta will change when the underlying asset’s price moves. It reflects the stability of Delta.
High Gamma means Delta changes rapidly, which can make an option’s price more volatile. Gamma is highest for at-the-money options and decreases for deep in- or out-of-the-money options.
Example:
If a BTC call option has a Delta of 0.5 and Gamma of 0.1, a $1,000 increase in BTC’s price will raise Delta to 0.6.
Vega (ν) — Sensitivity to Volatility
Vega measures how much the price of an option changes when implied volatility changes by 1%.
Volatility represents how much the underlying asset’s price is expected to move. When volatility rises, both call and put options tend to increase in value, as the potential for large price swings grows.
Example:
If Vega = 0.08, a 1% increase in volatility would increase the option’s price by 0.08 units.
Theta (Θ) — Time Decay
Theta measures how much an option’s value decreases as time passes, assuming all else stays constant.
Options lose value over time because the probability of a large price move decreases as the expiration date approaches. Theta is usually negative for both calls and puts, meaning options lose value as time passes.
Example:
If Theta = –0.05, the option’s price will decrease by 0.05 units per day, assuming no other changes.
Rho (ρ) — Sensitivity to Interest Rates
Rho measures how much an option’s price changes with a 1% change in interest rates.
It reflects the relationship between interest rates and option value, which comes from how rates affect the cost of carrying a position and the discounted value of future payoffs.
For call options Rho is typically positive: as interest rates rise, call options become more valuable.
For put options, Rho is usually negative: as interest rates rise, put options become less valuable.
Example:
If Rho = 0.25 and the risk-free rate rises from 5% to 7% (a 2% increase), the option’s price would increase by roughly: 0.25 × 2% = 0.5%.