Greeks are dimensions of risk involved in taking a position in an option or other derivative. Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable.

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Various sophisticated hedging strategies are used to neutralize or decrease the effects of each variable of risk. With the exception of vega , which is not a Greek letter, each measure of risk is represented by a different letter of the Greek alphabet. Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one.

For example, assume an investor is long a call option with a delta of 0. Theta indicates the amount an option's price would decrease as the time to expiration decreases.

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For example, assume an investor is long an option with a theta of The option's price would decrease by 50 cents every day that passes, all else being equal. For example, assume an investor is long one call option on hypothetical stock XYZ.

The call option has a delta of 0. Vega represents the rate of change between an option portfolio's value and the underlying asset's volatility - in other words, sensitivity to volatility. For example, an option with a Vega of 0.

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For example, assume a call option has a rho of 0. The opposite is true for put options. Dictionary Term Of The Day.

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What are 'Greeks' Greeks are dimensions of risk involved in taking a position in an option or other derivative. Vega Vega represents the rate of change between an option portfolio's value and the underlying asset's volatility - in other words, sensitivity to volatility.

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