What do the Greeks Mean?

Delta ▲ or ▼ are the symbols I use for delta. Simply put, if you had 100 shares of something, you’d have 100▲ (deltas). When you sell calls against shares, there is a ▼ negative delta that would then reduce your overall bias that you have on the stock. When you have a positive delta, you benefit from the stock going up. For every $1 the stock rises, you would get $1 x your shares, or delta in appreciation. Right now the delta is close to zero, so it doesn’t have much effect on the profit or loss of these positions.

Theta Θ is the real hero of the slinky strategy. Theta is a measurement of the decay of value over time. Since part of an options value includes the value of time, allowing it to decay is a benefit to the person who has sold the option. Over time, no matter what, there will be a decaying of the value of the option. Delta can overpower theta, so if there’s a huge rise or drop, then the formula for the net change is affected in proportion. A high positive theta means gains will come daily by the decay of time.

Gamma  y measures the rate of change in an option’s delta (its sensitivity to underlying price changes) for a $1 move in the underlying asset’s price, directly impacting how quickly the option’s price will accelerate its gains or losses. A high gamma means the option’s delta changes rapidly, leading to faster and more volatile price movements in the option itself, while a low gamma indicates more stable delta changes and slower price fluctuations. In this graph, a gamma of -90y means for every $1 change in stock price, my overall effect could be +/- $90.

The Theta of +433Θ overpowers this a little because it means for each day that goes by, there’s a decay in the overall position value of $433, meaning an increase in value to the position because the theta is positive.

With delta being pretty neutral, it’s not much of a factor, but if the price were to swing in any direction, then it gets plugged into the formula, and effects it’s own level of change.

Those “greeks” and how they act seems pretty complex at first, but there are ways to go about learning how they work one by one. Most people already know how Delta works, but they’ve never thought about it because they just consider the number of shares they bought as a number. Each share is 1▲ or one delta.

Theta can be compared to what happens if you sell someone a block of ice. It’s value to be sold as a block of ice has a limited lifespan, and as time goes on, it may melt away to nothing unless conditions change. With theta, when you sell an option, the value it holds is high at the beginning. As time goes by, that value can decrease to nothing, and therefore you don’t have to worry about paying anything back to close the contract. Things can change though, and that’s why delta can overpower theta if the price changes significantly. More on that another day.