What are Options Greeks and how to use them as your trading guide

Options Greeks are turned away most of the time due to their heavy mathematical calculations and not being so simple to comprehend. So, instead of trying to derive values of such Options Greeks, let us try to just define them and at least get the applied utilities of them in our everyday option trading.

If we were to calculate each and every Options Greek of our position it would not be possible unless one is a mathematician. However, there is an easy way out as there are numerous platforms available nowadays that help us with Options Greeks of our total options positions.

Why look at Options Greeks? Well, because they give an insight on the options positions. It would throw light on the fact that in an attempt to contain the unfavorable underlying price risk if we have taken any other risk that could ruin our profitability despite our view going right.

Let us understand popularly-monitored Options for Greeks, their utility, and action.

Delta

Delta is the rate of change of the options price with respect to the price of the underlying. Deltas can be positive or negative. Deltas can also be thought of as the probability that the option will be in profits upon expiring. Having a delta-neutral portfolio can be a great way to mitigate directional risk from market moves for options sellers.

Utility

Look at this number as a representation of our position in the underlying. Positive 0.50 delta means the Options position represents 50 percent of buy exposure in the underlying and vice-versa.

Action

As long as for a positive view we have Positive Delta and vice-versa nothing needs to be done.

Theta

Theta measures the rate of change in an options price relative to time. This is also referred to as time decay. Theta values are negative in buy option positions and positive in sell option positions.

Utility

Theta number is nothing but the amount of money we will lose or gain (based on the negative of positive value) if a day passes by with all other factors like Price remains the same.