Prady Prakash

Module 3

The Greeks

Why these exist

Before expiry, an option's price depends on more than just where the stock is relative to the strike. It also depends on how much time is left and how volatile the stock has been. The "Greeks" are just a set of numbers that describe how sensitive an option's price is to each of those factors. You don't need the formulas behind them — just what each one is telling you.

Delta: your stand-in for probability

Delta tells you two things at once: roughly how much the option's price moves per $1 move in the stock, and — as a rough rule of thumb — the probability the option finishes in the money. A 0.30 delta call is a bet with roughly a 30% chance of paying off; a 0.70 delta call is already close to in the money and behaves a lot like owning the stock outright.

Theta: the cost of waiting

Theta is time decay — how much value an option loses every single day, just from time passing, assuming nothing else changes. If you buy options, theta is working against you every day you hold the position. If you sell options, it's working for you. Theta accelerates as expiry approaches, which is why options bought too close to expiry can lose value fast even if you're right about direction.

Vega: sensitivity to fear and uncertainty

Vega tells you how much an option's price changes when implied volatility changes. When the market gets nervous, implied volatility rises and option prices rise with it — independent of where the stock actually goes. This is why options can gain value even when the stock barely moves: a spike in fear alone can do it.

A single $100-strike call, priced at $ 3.61 per share right now. Move the sliders and watch the Greeks react.

Stock price$100
Days to expiry30d
Implied volatility30%

Delta

0.53

Roughly a 53% chance of finishing in the money. The option's price moves about $0.53 for every $1 the stock moves.

Theta

-$0.06/day

How much value this option loses per day from time passing alone, holding everything else fixed.

Vega

$0.11

How much the price changes for every 1-point move in implied volatility (e.g. 30% to 31%).

Putting it together

None of these move in isolation — change the stock price and delta itself shifts; let time pass and theta's bite changes too. You don't need to track all of this in your head while trading. The point of this module is just intuition: when you check an option's Greeks before a trade, you should now know what each number is actually telling you.