What Are the Greeks?
The Greeks are risk measures that quantify how option prices change relative to various factors. Named after Greek letters, they help traders understand and manage options position risk. The primary Greeks are Delta, Gamma, Theta, and Vega.
Delta
Definition
Measures option price change per $1 move in underlying.
Values
- Calls: 0 to +1
- Puts: -1 to 0
- ATM options: ~0.5 (calls) or ~-0.5 (puts)
Uses
- Directional exposure measurement
- Hedge ratio calculation
- Probability proxy (roughly)
Example
Delta 0.6 call: Option gains ~$0.60 when asset rises $1
Gamma
Definition
Rate of delta change per $1 move in underlying.
Characteristics
- Always positive for long options
- Highest at ATM, near expiration
- Measures convexity/acceleration
Uses
- Delta hedging frequency
- Risk of rapid delta changes
- Position sizing
Theta
Definition
Option value lost per day from time decay.
Characteristics
- Negative for long options (lose value daily)
- Positive for short options (gain from decay)
- Accelerates near expiration
- Highest for ATM options
Example
Theta -5: Option loses $5 per day (all else equal)
Vega
Definition
Option price change per 1% change in implied volatility.
Characteristics
- Positive for long options
- Negative for short options
- Highest for ATM, longer-dated options
Example
Vega 10: Option gains $10 when IV rises 1%
Secondary Greeks
Rho
Sensitivity to interest rate changes (less relevant for crypto).
Vanna
Rate of delta change with volatility.
Charm
Rate of delta change with time.
Using Greeks in Trading
Position Management
- Delta hedge for directional neutrality
- Monitor gamma for hedge frequency
- Track theta for time decay cost
- Manage vega for volatility exposure
Portfolio Greeks
Sum individual position Greeks for portfolio-level risk:
- Net delta: Overall directional exposure
- Net gamma: Convexity risk
- Net theta: Daily time decay
- Net vega: Volatility sensitivity
Greeks in DeFi
DeFi options protocols like Lyra display Greeks for each position, enabling sophisticated risk management on-chain.