The Greeks

In finance, the Greeks are quantities representing the price sensitivity of derivatives (options in our case) to a change in an underlying parameter. Now that we know what goes into pricing an option, we can start deriving the derivatives of the price of an option in respect to each of those underlying parameters. In this post, I'll go over broadly all the different Greeks we'll be looking at. In subsequent posts, I'll do a deeper dive with each.

Delta
This Greek is the measure of rate of change of an option's theoretical value with respect to changes in the underlying assets price.

Gamma
This Greek is the measure of the rate of change of the delta with respect to the changes in the underlying asset price.

Theta
This Greek is the measure of rate of change of the option's theoretical value with respect to the changes in time until maturity. Unlike other Greeks, where the variable can be unpredictable (underlying asset price can move up or down, volatility can go up or down, etc.), time can only move in one direction at a steady pace.

Rho
This Greek is the measure of rate of change of the option's theoretical value with respect to the risk-free interest rate. This is generally not dealt with on an individual basis but rather a team/group basis. When I was trading, the interest rates were so low and unchanging, that this Greek matter very little to us.

Vega
This Greek is the measure of rate of change of the option's theoretical value with respect to the volatility of the underlying asset. This one is probably one of the least understood by most people who trade. For my firm, given that we were options traders that didn't have an opinion on where the underlying was going to move to, vega is how we made most of our money, and I'll explain in detail later.

Etc.
As you can guess, there are a bunch more. The ones mentioned above are definitely the most commonly used (you can even look up these Greeks on Yahoo Finance) but the other ones are used more heavily by traders. These are generally second to third degree derivatives that give a more intimate understanding of the risks we face.