The Greeks let you measure different factors that could affect the price of an option.
- Delta: The ratio of the change in the price of the option to the corresponding change in the price of the underlying. Delta captures both the direction and the magnitude of the position's sensitivity to the underlying by representing the degree and direction of change in the option price, based on a change in the price of the underlying.
- Gamma: The rate of change of Delta with respect to the underlying asset's price. Gamma can help you assess directional risk by defining the speed at which the option's directional changes will occur, i.e. the rate of change of delta.
- Vega: The amount that the price of an option changes with a 1% change in volatility. Vega represents sensitivity to changes in implied volatility of the underlying, and shows the change in the price of an option relative to a change in the implied volatility of the underlying. Generally long option positions benefit from rising (and suffer from declining) implied volatilities, while short option positions experience the opposite - they benefit from declining (and suffer from rising) implied volatilities.
- Theta: A measure of the rate of decline of the value of an option due to the passage of time. This metric calculation is based on the assumption that all other variables remain unchanged, including the underlying price, implied volatility and interest rate.