4. The Greeks

As you learn about options and listen to the conversations of options traders, you will hear certain Greek letters mentioned. What are they talking about when they mention the delta, theta, gamma, vega (not a Greek letter), and rho? Are they referring to their favorite college fraternity or sorority?

The Greeks, as they are called in the terminology of options trading, are one-word expressions used to describe how the price of an option changes when something else changes. The origin of this terminology lies in the theory of options pricing where these Greek letters were first introduced to define these price changes in exact mathematical statements. The main goal of this chapter is to provide an overview of the Greeks and their ...

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