# 07) Greeks Beginner

In this lesson I will be going over a very important aspect of options trading, the “Greeks”. If you want to be a successful options trader, then understanding the Greeks and how they affect your options trades is a must.

For this beginning lesson on the Greeks, I’ll just be summarizing the important factors of each Greek. In later lessons, we’ll dive deeper into each one.

The Greeks are …

- Delta
- Theta
- Vega
- Gamma
- Rho

**Delta**

Delta is a measure of the sensitivity of the options contract price, in relation to the underlying stock’s price. It can be thought of simply as a “leverage rating”.

The higher the Delta, the greater your money is leveraged. Which means the more the options contract price will move up or down with the movement of the underlying stock.

An example being, a Delta of 0.50 would mean the options contract price would **increase by $0.50** should the underlying stock increase by $1 and **decrease by $0.50** if the underlying stock were to decrease by $1.

The further out the expiration date, the lesser the Delta.

**Theta**

Theta is a measure of “time decay”. All options contracts decay in value until they reach their expiration date. The amount they decay is noted by the Greek, **Theta**.

As the expiration date becomes closer, Theta will increase.

An example being, an options contract priced at $14 with a Theta of -0.10 will lose about $0.10 into the next day. Therefore, if the underlying stock stays the same, the price of this given contract the next day would be about $13.90.

The further out the expiration date, the lesser the Theta.

**Vega**

**Vega **is the measure of the options contract’s sensitivity to Implied Volatility. (Implied Volatility is the rating of how much price movement up or down is expected in the underlying stock.)

All options contract’s whether they be calls or puts, rise in price with a greater implied volatility. Knowing the **Vega **gives you insight into just how great of a change that will be.

The further out the expiration date, the greater the **Vega**.

**Gamma**

Gamma is a measure of the option’s **Delta’s **sensitivity to the change in price of the underlying stock. For every $1 move in the underlying, the **Delta **is changed by **Gamma**.

An example being, if the underlying stock increases by $1, the options contract with an original **Delta **of 0.50 and an original **Gamma **of 0.10 would now have a **Delta **of 0.60.

**Rho**

One of the less used Greeks is the Rho. Rho is a measure of the option’s sensitivity to interest rates. As a beginner options trader, it’s one that can be ignored for now.