DELTA

What are the GREEKS ?

Whenever there is talk about options, the so-called greeks of an option are mentioned. In case you already looked at the OPTIONATOR a number of greeks could be determined quantitatively. The greeks are special properties of the options that give you some feeling about the sensitivity of the option price on various parameters. Let us look at a few standard greeks to get a clearer perspective.

Some basic greeks

The D (Delta)

How much does the option price change if the stock price is changing by a small amount (e.g. 1 cent)?

You own a CALL option for one share of Ford Motor stock. Right now the stock value is $100. You look up the value for your option - it has a value of $5. Assume that just now the value of the stock jumps by 50 cents to $100.50 - everything else stays the same, the strike price, the risk-free interest and so on. You look up the value of the option again. It is now $5.20. The D for the Ford option is

the difference in option price: $5.20 - $5.00 = $0.20

divided by

the change in stock price: $100.50 - $100.00 = $0.50

D = $0.20 / $0.50 = 0.4

The D tells you the factor by which your option price changes when the underlying stock value changes. To understand how D depends on interest rate, volatility and other quantities play around with the OPTIONATOR!

Let us turn to some other greeks ...