The Greeks – Gamma

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                Gamma – Measures the rate of change in the option delta due to the movement of the underlying stock price.

                Gamma is expressed as a percentage and reflects how much the delta of an option will change if the underlying stock moves up or down $1.00.  A large gamma means that your delta can start changing significantly for even a small move in the stock price. Positive gamma means that the delta will increase when the underlying stock price increases and will decrease if the stock price decreases. Negative gamma means that the delta will decrease when the underlying stock price increases and will increase if the stock price decreases. Both long calls and long puts always have positive gamma and short calls and short puts always have negative gamma. Stock has a zero gamma because its delta is always 1.00 and never changes.

The Greeks – Rho

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Rho – Measures the change in the option price due to a change in interest rates.

Rho is an estimate of how much the value of an option changes when interest rates move 1.00%. Rho is one of the least used Greeks. Since interest rates are normally stable the chance of an option’s price will change dramatically due to an increase or decrease in interest rates is pretty low. Positive rho means that the option will increase in value when the interest rate increases and decreases when the interest rates decrease. Negative rho means that the option will decrease in value when the interest rate increases and increases when the interest rate decreases. Long calls and short puts have positive rho. Short calls and long puts have negative rho.

The Greeks – Theta

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Theta – Measures the change in the option price due to time decay. 

               Theta is an estimate of how much value of an option decreases for every day that passes and there is no move in either the stock price or volatility. The option’s theta is a measurement of the option’s time decay.  Time decay occurs because the time value of options diminishes as time passes and expiration draws nearer. Positive theta means that the option will increase in value as time passes, while negative theta means that the option will decrease in value as time passes.