INTRODUCTION TO OPTIONS GREEKS

 WHY ARE OPTIONS GREEKS SO IMPORTANT??

OPTIONS ARE TRADED BASED ON PREMIUMS, SO THE PRICE OF THE PREMIUMS PLAYS A VERY IMPORTANT ROLS IN OPTIONS TRADING AS WELL AS FOR THE OTHER MARKET PARTICIPENTS. 

THESE GEEKS INFULENS THE VALUE OF THE OPTION PREMIUM . SOME MIGHT INCREASE THE VALUE WHILE OTHER DECREASE THE PREMIUM VALUE.

LET'S UNDERSTAND THIS CONCEPT WITH AN EXAMPLE: -

    SUPPOSE THERE IS A CONTAINER CHIP SAILING IN THE OCEAN. THE SPEED OF THE SHIP VARIES ON THE VARIOUS FACTORS SUCH AS - 1) WIND SPEED, 2) WIND DIRECTION, 3) WATER DENSITY, 4) POWER OF SHIP, 5) SEA PRESSURE........

SIMILARLY CONSIDER THE SPPED OF THE SHIP AS THE OPTION PREMIUM. THERE ARE 5 GREEKS THAT INFLUENCE THE OPTIION PREMIUM 

1)DELTA (Δ) = AMOUNT OF OPTION PRICE CHANCE FROM 1$ CHANGE IN UNDERLYING

2)THETA (θ) = THE DECAY EFFECT ON THE OPTION PREMIUM

3)GAMMA ( Γ ) = THE RATE OF CHANGE OF DELTA

4)RHO (ö) = PREMIUM SENSITIVITY TO CHANGE IN INTEREST RATE

5)VEGA ( v) =AMOUNT OF OPTION PRICE CHANGE FOR EVERY 1% CHANGE IN VOLATILITY

THESE MIGHT SEEM A BIT DIFFICULT TO UNDERSTAND WITH ONE RAEDING BUT I WILL BE WRITING MORE BLOGS ON EXPLANING EACH ONE OF THE GEEKS SEPERATELY AND ITS EFFECTS ON THE OPTION PRICES OR PREMIUM.

FOR INSTANCE, I WILL BE SHARING A PHOTO OF OPTION CHAIN WITH YOU AND YOU HAVE TO CAREFULLY OBSERVE ALL THE VALUES OF GEEKS IN THEM. EVEN IF THEY DONT MAKE ANY SENCE TO YOU RIGHT NOW JUST GO THROUGH THEM. ILL SIMPLIFY EACH ONE OF THEM FOR YOU 

THIS IS A EXAMPLS OF THE OPTION CHAIN AND HOW TO GEEKS ARE PLACED BESIDE EVERY STRIKE.