The Greeks (Delta, Gamma, Theta, Vega)
Local, model-dependent sensitivity estimates whose units and accuracy change with price, time, volatility, rates, and model assumptions.
Option Greeks are derivatives or sensitivity measures describing how a model value changes for small changes in selected inputs. Delta, gamma, theta, vega, and rho depend on model, units, conventions, and current state, and they change as the underlying, time, volatility, rates, and dividends change.
Frequently Asked Questions
Does delta equal the exact option-price change for a one-unit move?
No. Delta is a local first-order approximation. Gamma and other cross-effects matter, especially for larger moves, short maturities, high convexity, or changing volatility.
Is theta the amount an option loses every day?
No. Theta is a model-based local time sensitivity under stated assumptions. Calendar conventions, weekends, volatility, rates, dividends, and underlying moves affect observed price changes.
Is vega measured per one percentage point?
Often, but not universally. Systems may report sensitivity to a 1-point or 1.00 change in volatility, so units must be checked before comparing values.
Can Greeks predict option prices during market stress?
They do not guarantee outcomes. Large jumps, volatility-surface shifts, liquidity changes, correlation changes, discrete dividends, and model error can make local approximations materially inaccurate.