Let’s explain the Greek letters of options in vernacular: Delta (Δ), Gamma (Γ), Theta (Θ) and Vega.
1. **Delta（Δ）-The little prince of changing speed**
Delta tells us how much the option price will change if the currency price changes by 1 yuan. For example, the Delta of an option is 0.5, which means that if the price of the related currency increases by 1 block, the option price will increase by 0.5 blocks; if the stock price drops by 1 block, the option price will fall by 0.5 blocks. For those who buy and sell options, Delta is like a "speedometer" that tells you how quickly the price of the option is changing.
2. **Gamma（Γ）-Acceleration expert**
Gamma is the acceleration of Delta. If Delta tells us how fast the option price is changing, then Gamma tells us how fast that speed itself is changing. Using a car analogy, if Delta is speed, then Gamma is the accelerator pedal - the deeper you step on it, the faster the car speed increases. For option traders, high Gamma means that small changes in stock prices will cause large fluctuations in option prices.
3. **Theta (Θ) - Time Killer**
Theta describes the decay of the time value of an option. As time passes and less time remains in the option, its value will slowly decrease. This is like buying a concert ticket. The closer it gets to the day of the concert, and if you haven't decided whether to go or not, the value of the ticket will become less and less. For those who sell options, Theta is a good friend; for those who buy options, it can be an enemy.
4. **Vega - Volatility Elf**
Vega is a measure of the sensitivity of option value to stock price volatility. Simply put, it means how much the stock price fluctuates and how much it affects the value of the option. If Vega is high, then the stock price will fluctuate more, and the option price will change significantly. Vega is like a weather forecast for options traders, telling you the impact of weather (market) changes on you.
These Greek letters are important for understanding and trading options, and they help traders evaluate risk and potential profit.
