Definition
The Greeks are partial derivatives of the option pricing model, each measuring sensitivity to a different factor. Delta (price), gamma (delta change), theta (time), vega (volatility), and rho (rates) collectively describe an option's risk profile. Professional traders manage portfolios to specific Greek targets, hedging unwanted exposures while maintaining desired ones.
lightbulb Example
A portfolio has delta of +500, gamma of +50, theta of -$200/day, and vega of +$300/vol point. The manager is bullish (positive delta), benefits from big moves (positive gamma), but pays time decay and benefits from rising volatility.
verified_user Key Points
- Delta, gamma, theta, vega, rho are the primary Greeks
- Greeks enable precise risk management
- Portfolio Greeks are additive
- Second-order Greeks (gamma, charm, vanna) matter for complex positions