Greeks

Welcome to the Greeks section of Ruthless Accountability, where I break down the mathematical forces that drive option pricing.

The Greeks might sound intimidating at first – Delta, Gamma, Theta, Vega, and Rho – but they’re simply measurements that explain how and why option prices change.

Think of them as the dashboard gauges in your trading vehicle: Delta shows your speed, Gamma measures acceleration, Theta tracks time decay, Vega monitors volatility impact, and Rho watches interest rates.

For income traders like myself, understanding the Greeks transforms options from mysterious black boxes into predictable, manageable tools.

Master these five concepts, and you’ll know exactly why your options gain or lose value, when to enter and exit trades, and how to stack the odds in your favor.

Rho

Rho measures how much an option’s price changes when interest rates move 1%, making it the least impactful Greek for most traders. In an era of relatively stable interest rates, rho rarely affects day-to-day option trading decisions. However, understanding rho becomes important for LEAPS (long-term options), during Federal Reserve policy shifts, or when trading high-priced … Read more

Vega

Vega measures how much an option’s price changes when implied volatility moves 1%, making it crucial for understanding option pricing beyond simple stock movement. Unlike the other Greeks that deal with price and time, vega captures the market’s fear, uncertainty, and expectations. When traders say options are “expensive” or “cheap,” they’re really talking about implied … Read more

Gamma

Gamma measures how fast your delta changes as the stock moves, making it the “acceleration” of option pricing. Think of it like driving a car – if delta is your speed, gamma is how quickly you can speed up or slow down. For option buyers, gamma is the secret weapon that creates those massive overnight … Read more

Theta

Theta measures how much an option loses value each day simply from the passage of time, making it the most important Greek for income traders. Often called “time decay,” theta is why options are considered wasting assets – they lose value every single day, even if the stock doesn’t move. For option sellers, theta is … Read more

Delta

Delta is the most straightforward of the option Greeks, measuring how much an option’s price changes when the underlying stock moves $1. Think of delta as your “stock equivalent position” – a 0.50 delta call acts like owning 50 shares, while a -0.50 delta put acts like being short 50 shares. But delta tells you … Read more