What Are the Option Greeks?
The Greeks are sensitivities derived from an option pricing model that describe how the option's value responds to small changes in each underlying variable. Named after Greek letters, they turn a complicated nonlinear instrument into a set of manageable risk numbers that traders can add up across an entire portfolio.
Delta measures the change in option price for a $1 move in the underlying, ranging from 0 to 1 for calls and 0 to -1 for puts. Gamma measures how fast delta itself changes. Theta captures the value lost each day as expiration approaches, vega shows sensitivity to a one-point change in implied volatility, and rho reflects sensitivity to interest rates.
How Traders Use the Greeks
Delta doubles as a hedge ratio. A call with a delta of 0.60 behaves like owning 60 shares per contract of 100, so a market maker who sells that call can neutralize the directional exposure by buying 60 shares. Because gamma causes delta to drift as the stock moves, the hedge must be rebalanced continuously, a process called dynamic or delta hedging.
The Greeks also frame the tradeoffs in any options position. An at-the-money option close to expiry has high gamma and rapidly accelerating theta decay, meaning it responds sharply to price moves but bleeds value every day the stock sits still. Long-dated options carry more vega, so their prices are driven as much by shifts in implied volatility as by the stock itself.
Why the Greeks Matter
Options desks manage risk almost entirely in Greek terms. Risk limits are set on net delta, gamma, and vega rather than on individual positions, and a trader's daily P&L is typically attributed line by line to each Greek. Understanding this attribution is what separates candidates who have merely read about options from those ready to work on a derivatives desk.
The Greeks are also standard interview material for sales and trading and quantitative roles. A classic question asks how delta and gamma behave as an option moves in or out of the money, or why theta is largest for at-the-money options near expiration. Being able to reason through those answers signals genuine comfort with how options actually trade.
