TRADING MENTORSHIP

PROGRAM WITH
ASEEM SINGHAL

DAY 2
DAY 2 - Options Greeks
1. Delta – Measures the rate of change of options premium based on the
directional movement of the underlying
2. Gamma – Rate of change of delta itself
3. Vega – Rate of change of premium based on change in volatility
4. Theta – Measures the impact on premium based on time left for expiry
5. Rho - Rho (p) represents how sensitive the price of an option is relative
to interest rates
1.Delta 1. Delta for Calls
Calls have positive delta, between 0 and 1
2.Gamma That means if the stock price goes up and no other
pricing variables change, the price for the call will go
up.
3.Vega Here’s an example:
If a call has a delta of .50 and the stock goes up
$1, in theory, the price of the call will go up about
4.Theta
$.50.
If the stock goes down $1, in theory, the price of
5.Rho the call will go down about $.50
1.Delta 2. Delta for Puts
Puts have a negative delta, between 0 and -1.
2.Gamma That means if the stock goes up and no other pricing
variables change, the price of the option will go
down.
3.Vega For example:
If a put has a delta of -.50 and the stock goes up
$1, in theory, the price of the put will go down
4.Theta
$.50.
If the stock goes down $1, in theory, the price of
5.Rho the put will go up $.50.
Approx Delta values
1.Delta 2. Gamma
Gamma = Change in Delta
2.Gamma Gamma is the rate that delta will change based on a $1
change in the stock price.
So if delta is the “speed” at which option prices
3.Vega change, you can think of gamma as the “acceleration.”
Options with the highest gamma are the most responsive
to changes in the price of the underlying stock.

4.Theta
As we’ve mentioned, delta is a dynamic number that changes as the stock price
changes. But delta doesn’t change at the same rate for every option based on a
given stock.
5.Rho
1.Delta If you’re an option buyer,
High gamma is good as long as your forecast is correct.

2.Gamma Do you wanna guess why?

3.Vega
If you’re an option seller, high gamma is the enemy if your forecast
is incorrect.

4.Theta Do you wanna guess why?

5.Rho
1.Delta If you’re an option buyer,
High gamma is good as long as your forecast is correct.
That’s because as your option moves in-the-money, delta will
2.Gamma approach 1 more rapidly. But if your forecast is wrong, it can
come back to bite you by rapidly lowering your delta.

3.Vega
If you’re an option seller, high gamma is the enemy if your forecast
is incorrect.
That’s because it can cause your position to work against you
4.Theta
at a more accelerated rate if the option you’ve sold moves in-
the-money. But if your forecast is correct, high gamma is your
friend since the value of the option you sold will lose value
5.Rho more rapidly.
1.Delta Vega
Vega is the amount call and put prices will change, in theory,
for a corresponding one-point change in implied volatility.
2.Gamma
Vega does not have any effect on the intrinsic value of
options; it only affects the “time value” of an option’s price.

3.Vega You can think of vega as the Greek who’s a little shaky and over-
caffeinated.

Let’s examine a 30-day option on stock XYZ with a $50 strike price
4.Theta
and the stock exactly at $50. Vega for this option might be .03. In
other words, the value of the option might go up $.03 if implied
volatility increases one point, and the value of the option might go
5.Rho down $.03 if implied volatility decreases one point.
 Theta
1.Delta
Theta is the amount the price of calls and puts will decrease
(at least in theory) for a one-day change in the time to
2.Gamma expiration.

Time decay, or theta, is enemy number one for the option buyer.
On the other hand, it’s usually the option seller’s best friend
3.Vega

In the options market, the passage of time is similar to the

effect of the hot summer sun on a block of ice.
Each moment that passes causes some of the option’s
4.Theta
time value to “melt away.”
Furthermore, not only does the time value melt away, it does
so at an accelerated rate as expiration approaches.
5.Rho
 ASSERTION :
1.Delta
At-the-money options will experience more significant
dollar losses over time than in- or out-of-the-money
2.Gamma options with the same underlying stock and expiration
date

3.Vega REASON:

4.Theta

5.Rho
 ASSERTION :
1.Delta
At-the-money options will experience more significant dollar
losses over time than in- or out-of-the-money options with the
2.Gamma same underlying stock and expiration date

REASON:
That’s because ATM options have the most time value built
3.Vega into the premium. And the bigger the chunk of time value built
into the price, the more there is to lose.

4.Theta Keep in mind that for OTM options, theta will be lower than it
is for ATM. That’s because the dollar amount of time value is
smaller. However, the loss may be greater percentage-wise
5.Rho for out-of-the-money options because of the smaller time
value.
1.Delta

2.Gamma

3.Vega

4.Theta

5.Rho
 5. RHO :
1.Delta
That’s the amount an option value will change in theory
based on a one percentage-point change in interest rates.
2.Gamma
For example, If an option has a Rho of 0.50, then the value
of the option would increase or decrease by an average of
3.Vega 50 cents when the interest rate increases or decreases by
1%.

4.Theta Rho is the least significant of the factors we’ve discussed

since the interest rate does not affect the value of an
option as much as other determinants. However, it should
5.Rho be considered if current interest rates are expected to
change.
 HOW TO READ OPTION
CHAIN
THE CHART IS DIVIDED INTO CALL AND PUT OPTIONS. ON
THE LEFT SIDE, WE HAVE DATA FOR CALL OPTIONS AND
PUT OPTIONS ON THE RIGHT SIDE.

CHART
Call Options Put Options
Strike Price
Other Data
OI: OI is an abbreviation for Open Interest. It is a data that signifies the
interest of traders in a particular strike price of an Option. OI tells you
about the number of contracts that are traded but not exercised or
squared off. The higher the number, the more is the interest among
traders for the particular strike price of an Option. And hence there is high
liquidity for you to able to trade your Option when desired.

Change in OI: It tells you about the change in the Open Interest within the
expiration period. The number of contracts that are closed, exercised or
squared off. A significant change in OI should be carefully monitored.
Other Data
Volume: It is another indicator of traders interest in a particular strike
price of an Option. It tells us about the total number of contracts of an
Option for a particular strike price are traded in the market. It is calculated
on a daily basis. Volume can help you understand the current interest
among traders.

IV: IV is an abbreviation for Implied Volatility. It tells us about what the

market thinks on the price movement of the underlying. A higher IV means
the potential for high swings in prices and low IV means no or fewer
swings. IV doesn't tell you about the direction, whether upward or
downward, movement of the prices.
Other Data
LTP: It is the abbreviation for Last Traded Price of an Option.

Net Chng: It is the net change in the LTP. The positive changes, means rise
in price, are indicated in green while negative changes, decrease in price,
are indicated in red.

Bid Qty: It is the number of buy orders for a particular strike price. This
tells you about the current demand for the strike price of an Option.
Other Data
Bid Price: It is the price quoted in the last buy order. So a price higher
than the LTP may suggest that the demand for the Option is rising and vice
versa.

Ask Price: It is the price quoted in the last sell order.

Ask Qty: It is the number of open sell orders for a particular strike price. It
tells you about the supply for the Option.
ITM, ATM, and OTM
In-The-Money (ITM): A call option is in ITM if its strike price is less than the
current market price of the underlying asset. A put option is ITM if its
strike price is greater than the current market price' of the underlying
asset.
ITM, ATM, and OTM
At-The-Money (ATM): When the strike price of a Call or Put option is equal
to the current market price of the underlying asset then it is in ATM.
ITM, ATM, and OTM
Over-The-Money (OTM): A call option is OTM if the strike price is greater
than the current market price of the underlying asset. A put option is OTM
if the strike price is less than the current market price of the underlying
asset.
QnA