If you are an Options trader, the 2 most important Greeks that you will really need to understand are Delta and Theta. Although some might say that they are quite difficult to understand in totality, but once you get your head around these 2 most important Greeks, you should be able to make the most of your Trading in Options.
The Greek Delta is used to measure an Option’s sensitivity to variations in the value of the underlying asset; so if the value of the stock goes up by a dollar, the position of the Option either profits or losses by the value of the Greek Delta. It actually works like a percentage; so if the value of delta is 35, the position of the Option either goes up or goes down by 35% of the value of the underlying stock. And the crucial thing is that it changes in real time, with the corresponding change in the price of an Option.
Moving onto the other most important Greek called Theta; Theta is actually used to measure the rate of change of an Option’s value as it moves towards its time of expiry with the passage of time. So whenever you plan to go for trading an Option, Theta also plays an important role in assessing the loss in value of the Option regardless of the direction in which the price of the option is headed towards. For instance if Theta is .02 on your Option’s chain, it implies that it will lose 2 cents a day from its value if all other factors remain unchanged. With the passage of time, even these 2 cents per day could easily make a huge difference in the final price of the Option, the day you decide to sell it in the market.
That’s why; it becomes extremely important that you get your head around these 2 most important Options Greeks, which can help you a great deal in deciding about your options trading, and take a well informed decision to plan a sell or buy strategy based on the market factors affecting the value of these Greeks. There are plenty of great resources on the web as well, where you can go to get comprehensive information about these Options Greeks, and how can they help you in making a profitable decision during trading of options.