Delta, Theta, Vega – The Greeks Every Trader Must Know
Decode the language of options like a pro.
Introduction
Options trading isn’t just about market direction—it’s about understanding how different factors influence option prices. That’s where The Greeks come in. In this post, we’ll break down the three most crucial Greeks every trader must know: Delta, Theta, and Vega.
What is Delta?
Delta measures the change in an option’s price relative to a ₹1 change in the price of the underlying asset.
- A Delta of 0.5 means the option price changes ₹0.5 for every ₹1 move in the stock.
- Call options have positive Delta; Put options have negative Delta.
- Higher Delta indicates more significant directional exposure.
- Delta also provides a rough estimate of the probability of the option expiring in-the-money.
Practical Insight:
Use Delta to manage directional exposure and balance your positions. Neutral strategies aim for a net Delta close to zero.
What is Theta?
Theta represents the time decay of an option—how much value the option loses each day as expiry approaches.
- A Theta of -5 implies the option loses ₹5 per day.
- Time decay accelerates as expiry nears.
- Option sellers benefit from Theta decay.
Practical Insight:
Theta is your ally if you’re selling options. Weekly expiries offer high Theta, especially near expiry in sideways markets.
What is Vega?
Vega measures the change in an option’s price concerning a 1% change in implied volatility (IV).
- A Vega of 0.1 means the option price changes by ₹0.1 if IV changes by 1%.
- Higher Vega indicates more sensitivity to volatility swings.
- Buyers benefit from rising IV; sellers benefit when IV drops.
Practical Insight:
Sell options when IV is high (overpriced premiums), and buy when IV is low (undervalued options).
Quick Summary Table
| Greek | Measures | Who Benefits |
|---|---|---|
| Delta | Price movement sensitivity | Directional Traders |
| Theta | Time decay | Option Sellers |
| Vega | Volatility impact on premium | Depends on IV |
Final Thoughts
Understanding the Greeks separates professional traders from gamblers. Whether you’re building income strategies or hedging risk, always keep an eye on Delta, Theta, and Vega—they’re the true drivers behind your trades.
Let your trades be guided by data, not drama.
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