Options Greeks Explained

Options Greeks are mathematical measures that describe how an option's price changes in response to various market factors. Understanding Greeks is essential for anyone trading options beyond simple directional bets.

Delta measures how much an option's price changes for every Rs 1 move in the underlying. A Delta of 0.5 means the option gains Rs 0.50 when the stock rises Rs 1. Call options have positive Delta (0 to 1); Put options have negative Delta (-1 to 0). At-the-money options typically have a Delta around 0.5. Delta also approximates the probability of the option expiring in the money.

Gamma measures the rate of change of Delta — how fast Delta itself changes as the underlying moves. ATM options have the highest Gamma. Near expiry, ATM Gamma explodes — small moves in the underlying cause huge swings in Delta. This is why near-expiry ATM options are so dangerous for sellers (unlimited Gamma risk) and potentially profitable for buyers.

Theta is the daily time value decay. If a Nifty option has Theta of -50, it loses approximately Rs 50 in value every day purely due to passage of time, assuming everything else stays constant. Weekly options have very high Theta on Wednesday/Thursday — making them popular for premium sellers but treacherous for buyers.

Vega measures sensitivity to Implied Volatility (IV). When IV rises, option premiums rise (good for buyers, bad for sellers). Vega is highest for ATM options with longer expiry. Before major events (budget, election results, quarterly results), IV spikes — inflating premiums. After the event, IV crashes (IV crush), often destroying option buyers even when they predicted the direction correctly.

Implied Volatility (IV) reflects the market's expectation of future price movement. India VIX (Fear Index) measures Nifty's IV. High VIX = expensive options, high fear. Low VIX = cheap options, complacency. Selling options when IV is high (and buying when IV is low) is a core professional strategy.