Options Greek Case Study

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Options Greeks Options Greeks, which consist of Delta, Gamma, Theta, Vega and Rho, measure the different factors that affect the price of an option contract. They are calculated using the Black-Scholes options pricing model. The Greeks provide a way to measure the sensitivity of an option's price to quantifiable factors. Since there are a variety of market factors that can affect the price of an option in some way, assuming ceteris paribus (all other factors remain constant), pricing models can be used to determine the Greeks and therefore the impact of each factor on the options premium when its value changes. For example, if we know that an option typically moves less than the underlying stock, we can use Delta to determine how much it is expected to move when the stock moves $1. If we know that an option loses value over time, we can use Theta to approximate how much value it loses each day. There are two major reasons why an understanding of the Greeks is important and critical: the direction in which an option trade is about to head is predicted by the Greeks (given a change in the market) Greeks show how to protect your position against adverse movements in critical market variables Black-Scholes Model The Black-Scholes model for calculating option premium was developed by three economists – Fischer Black, Myron Scholes and Robert…show more content…
Just as this call option has a positive Delta, i.e., the option premium increases with a unit increase in stock price, a put option with the same strike price will decline in price with a unit increase in stock price, and will therefore have a negative delta. Therefore, long calls and short puts have positive delta while short calls and long puts have negative

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