Options

Options Greeks

By John Summa http://www.investopedia.com/university/option-greeks/default.asp Thanks very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx

Table Of Contents

1) Option Greeks: Introduction 2) Option Greeks: Options and Risk Parameters 3) Option Greeks: Delta Risk and Reward 4) Option Greeks: Vega Risk and Reward 5) Option Greeks: Theta Risk and Reward 6) Option Greeks: Gamma Risk and Reward 7) Option Greeks: Position Greeks 8) Option Greeks: Inter-Greeks Behavior 9) Option Volatility: Conclusion

Introduction

Trading options without an understanding of the Greeks - the essential risk measures and profit/loss guideposts in options strategies - is synonymous to flying a plane without the ability to read instruments. Unfortunately, many traders are not option strategy "instrument rated"; that is, they do not know how to read the Greeks when trading. This puts them at risk of a fatal error, much like a pilot would experience flying in bad weather without the benefit of a panel of instruments at his or her disposal. This tutorial is aimed at getting you instrument rated in options trading, to continue the analogy with piloting, so that you can handle any strategy scenario and take the appropriate action to avoid losses or enhance gains. It will also provide you with the tools necessary to determine the risk and reward potential before lift off. When taking an option position or setting up an options strategy, there will be risk and potential reward from the following areas:

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