In the world of finance, Greek letters are used to represent how sensitive a financial derivative’s prices are to changes in parameters; the option greeks are the option version of these. Financial derivatives can be volatile and sensitive to factors such as changes in the pricing of the underlying asset. Each character denotes the sensitivity of an option’s price to the change in some attribute of the underlying asset, such stock price and volatility. These attributes are components of risk that a trader needs to control if he/she is to manage the risk of their portfolio. The Greek characters are easy to calculate and are a popular tool amongst derivatives traders, especially since the letters are very useful in portfolio hedging, which enables the investors to protect their investments from adverse changes within the market. Epsilonoptions.com, the key resource for options traders, is proud to provide you this quick primer on each of the ‘greeks’ and their meaning.
Infographic by epsilonoptions.com