Learn The GREEKS : Option Trading 101 (w/ Examples)

Learn options basics in todays video we learn the greeks: delta, gamma, theta, rho, and vega and how we use these options to make money!

The greeks is a term for multiple measuring factors which can determine and predict the price movement of option premiums which allows you to understand the risk exposure of those options. In simple english - these greeks - and there are 5 we will go over - are there to help us measure how an option premium price will be affected in the future based on different things.

DELTA: Delta will be used to determine how much the option price of a particular contract will move - either up or down depending on how the stock price moves. So the stock price goes up? Well, how do we know what the option price will then be? We use delta! Delta is defined as the expected change in an options price relative to $1 movements in the underlying stock price. So again, Delta is going to help us determine how the option price will move for every $1 the stock moves. Delta values you’ll notice will go from 0 to +1 with calls, and 0 to -1 with puts. Thats the number that the premium price will increase or decrease by.

GAMMA: So now that we understand Delta - and how the price of the option is affected by Delta we can now understand gamma - because gamma affects delta - and delta affects the price of the option - so through this weird chain of events gamma affects the price of the option. K - Gamma is the rate of change of an options delta relative to a 1 point move of the underlying stock. So just like Delta, when the stock moves up $1, the option price is affected. So lets take an example - we have a stock trading at $10 with an option contract price of $2. The option delta is .5 and the gamma for the option is .1 - Now lets say the $10 stock increases to $11 - a 1 point move in the stock. The gamma of the option, which is .1 will affect the delta of the option which is .5 .1+.5 is .6 - so now the new delta of the option at the $11 price is .6 which in turn will affect the overall price of the option.

THETA : One very important thing to understand about options is that all options lose value as they get closer to the expiration date if all other things remain constant. So you buy an option - you’re always fighting time - and that option is losing value every day, every week, every month until at expiration there is only the intrinsic value left of that option. This is due to Theta - or Theta decay. Theta refers to the rate of decline in the value of an option due to the passage of time. Theta is usually expressed as a negative number and that number tells you how much value the option will lose every day until expiration. Now that you know all this you can see how selling options is favorable - because you can sell an option and just let Theta decay do its thing - and as the option price decreases - something it does naturally - you, as the option seller make money.

RHO : Rho measures the price change of an option in relation to risk-free interest rates. When speaking of risk-free interest rates we are talking about something like U.S. treasury bills. For example - if an option has a rho of 1.0, then for every 1 percentage-point increase in interest rates, the value of the option will increases by the amount of Rho - which is 1.
Remember, Call options generally rise in price as interest rates increase and put options decrease in price as interest rates increase. So, call options have a positive rho, while put options have a negative rho. Alrighty got that out of the way.

VEGA - Vega represents the amount that an option contract's price changes based on a 1% change in the implied volatility of the underlying stock. So just like all the other greeks, the option price is affected by something and in vegas case that something is it’s implied volatility. I think you’re getting the hang of this now I can feel it. For every 1% move up or down in implied volatility, the option price will move up or down by the amount of Vega.

I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.

[justmrisrael]

Delta - derivative
Gamma - gain
Theta - time
Rho - rate
Vega - volatility
Is what I’m getting…
Most important video I’ve seen this year

[RahimRahimli]

Summary of the video:
imagine buying some call options:
1. stock moves up by one dollar -> the price of the option then increases by the delta
2. stock moves up by one dollar -> then the delta is increased by the amount of the gamma
3. a day goes by in the options life -> and the price is then decreased by the theta because theta decay decreases that price of the option
4. interest rate just went up -> then the price of the option will increase because of rho as we know rho is what we look for when interest rates increase or decrease
5. the implied volatility rises by one percent -> then the option price will increase by the amount of Vega

[aleksandrkhramtcov]

I wish there was an animation of how each greek affects the option price movements. But still awesome video.

[stanwiley]

This is the best video on explaining the Greeks that I've seen yet. Also love the humorous tone in which it's delivered. Made it super fun to watch and learn! 😁

[infiniteomega]

As a huge newb to options trading, i absolutely love this channel! You explain things in a much more easy-to-understand way than other channels. Would you consider doing a video going more in depth specifically into selling shorter-term covered calls against leaps? Is there a strategy revolving around buying a leap, selling when getting assigned, buying another leap, etc.?? Like, instead of alternating between selling calls and puts, buying and selling only calls instead? Do you have a Discord?

[tonynunez]

Thank you for taking the time to explain complex information in great detail and in a way that is easy to understand with great humor.

[salimsbenaty]

I've watched about a million videos about the Greeks and never could understand them... until now. Thank you so much for the great content!

[thomaskiser]

You have the best videos for understanding everything somehow! Been watching for a couple weeks before dipping my toes! Thanks for the good content and explanations!

[Andy_OvaSeas]

Bro, thank you for taking some complex definitions and making them comprehendible to everyone. Great content.

[delsolanki]

I am completely newnto options. I am on a self education journey and this is one of the best videos i have seen explaining the greeks.

[underratednerd]

Great freakin video! The explanations with the examples were key. You didn’t just word vomit and expect people to be impressed by multisyllable words. Great job friend!

[adatshhc]

Clear, concise, entertaining, and useful. Thank you.

[farias]

I wish I had a maths teacher like you back when I was in high school

[SodanyLove]

I was just watching another video on this topic and i was so lost lol but your video is very clear and informative, thanks.

[peternguyen]

Very good video. I am watching your entire options video series to learn how to trade options

[tywoodsgetgrants]

As a daily options trader, I️ finally understand how the Greeks work! Thank you!

[smileypc]

I tried to like this video 3 times after I’d already liked it. Great explanations!

[vonnjames]

I am so happy I spent 2 years obsessed on learning price action before i even peeked at options. It would seem so complicated if I did not understand general market behavior

[_TheBuckeyeGuy]

Man this video is awesome, definitely got a new subscriber!! Thanks man 🙏🏽

[josezerpa]

Thank you for all the info that you share with all of us newbies.