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Mar 30

How much do you know about the Greeks?

Posted by abiao at 19:46 | Review | Comments(0) | Reads(7177)
Option Greeks measure the sensitivity of option's value to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent. Commonly used Greeks include Delta, Gamma, Vega, Rho, and Theta, which represents partial derivative to underlying asset price, delta, volatility, interest rate and time to maturity, respectively. Obviously a good risk control depends largely on how accurate the way a trader or risk manager compute Greeks, see old post Option Greeks analysis for nice Matlab files plotting Greeks for vanilla options.

No matter what the investment, an investor needs to know and fully understand the potential risks of the investment prior to committing capital to that investment. In the options market, the Greeks define and quantify the risks of your position before you commit to the investment. Understanding the Greeks is a must for proper risk management. Further, the Greeks can also help you identify and select not only the proper strategy to fit the opportunity you selected, but also which specific options to use to create that specific strategy.

Without a full understanding of the risks of an investment, an investor should never commit hard earned money. If you do not know your Greeks, you have no business being in the options market! Watch this complimentary seminar covering the Greeks…
Option Greeks seminar.

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