Understanding Option Greeks — The Engine Behind Every Trade




Note: We will be discussing the Greeks in layman's way to avoid confusion, we at OptionRatio design strategies based on Options Premium, which is reflected based on all the Greeks. 

    Option Greeks are mathematical measures that help traders understand how options react to changes in the market. Mastering Greeks is key for both risk management and strategy optimization.

The Five Main Greeks

  1. Delta (Δ):
    Measures how much the option price moves for a 1-point change in the underlying.

    • Call Delta = 0 to +1; Put Delta = -1 to 0

    • Example: Delta 0.5 → Stock/Nifty moves ₹10 → Options Premium moves ₹5

  2. Theta (Θ):
    Measures time decay — how much value an option loses daily.

    • Buyers lose, sellers gain from Theta decay, if no movement in Spot price

    • Options near expiry = faster decay

    • ITM will have Intrinsic value, ATM will have Intrinsic value and OTM will have zero value(i.e., 0.05 for Nifty) 

  3. Vega (ν):
    Measures sensitivity to volatility.

    • High volatility → higher option prices, then be a seller

    • Useful when expecting big market swings

    • Low volatility → lower option prices, then be a buyer(conditions apply)

    • Useful when expecting no/low market swings

  4. Gamma (Γ):
    Measures rate of change of Delta.

    • Helps understand how Delta will change as the stock moves

    • Higher Gamma = option price reacts sharply to small moves

  5. Rho (ρ):
    Measures sensitivity to interest rate changes.

    • Minor effect for short-term trades, more relevant for long-term options(LEAPS)

Practical Example

Suppose Nifty is at 25,500:

  • Call option Delta = 0.6

  • Stock moves +₹100 → Option moves +₹60

  • If Vega rises due to sudden volatility → option value rises further

🎯 Key Takeaway:

    Greeks are like a dashboard. They help you anticipate risk, measure time impact, and predict reactions to market swings — making your trades more scientific than guesswork.