Option Greeks

The option Greeks are a set of sensitivity measures, each named after a Greek letter, that describe how an option's price is expected to change as one underlying input moves while the others stay fixed. They are the standard vocabulary for describing and hedging options risk.

Delta measures the change in option price per $1 move in the underlying asset; gamma measures how much delta itself changes per $1 move in the underlying; theta measures the option's loss in value per day as time passes; vega measures the change in option price per one-point change in implied volatility; and rho measures sensitivity to interest rates. All are derived as partial derivatives of an options pricing model such as Black-Scholes model with respect to each input.

Traders use the Greeks to construct and monitor hedged positions — for example, a "delta-neutral" position is built to be insensitive to small moves in the underlying — and market makers rely on them continuously to manage inventory risk alongside signals from the order book. A common pitfall is treating the Greeks as fixed: they change as the underlying price, time to expiry, and volatility change, sometimes sharply near expiry or for deep in- or out-of-the-money options, so hedges built on them require ongoing rebalancing.