The Greeks are four numbers that tell you how an option's price changes in response to different market conditions. Delta measures direction, gamma measures acceleration, theta measures time decay, and vega measures volatility sensitivity.
You don't need to memorize formulas. You need to understand what each one tells you about your position's risk.
Delta tells you how much the option price changes when the stock moves $1. A call with a delta of 0.50 gains $0.50 when the stock rises $1. A put with a delta of -0.40 gains $0.40 when the stock drops $1.
Delta also approximates the probability of the option expiring in the money. A 0.30 delta call has roughly a 30% chance of being profitable at expiration. A 0.70 delta call has roughly a 70% chance.
For multi-leg strategies, delta tells you your directional exposure. A bull call spread might have a net delta of 0.25 — it behaves like owning 25 shares of stock. An iron condor near zero delta is market-neutral.
Gamma tells you how much delta changes when the stock moves $1. High gamma means your position becomes more bullish (or bearish) as the stock moves.
At-the-money options near expiration have the highest gamma. This is why option prices swing wildly in the last few days before expiry — small stock moves create large changes in delta, which create large changes in the option's price.
For buyers, high gamma is good — your option becomes increasingly sensitive to favorable moves. For sellers, high gamma is dangerous — small moves against you cause large losses.
Theta tells you how much value the option loses per day just from the passage of time. A theta of -0.05 means the option loses $5 per day (per contract) even if nothing else changes.
Time decay accelerates as expiration approaches. The last week before expiration is when theta does the most damage. For option buyers, theta is a cost. For option sellers, theta is income — it's why people sell covered calls, credit spreads, and iron condors.
Vega tells you how much the option's price changes when implied volatility moves 1 percentage point. A vega of 0.10 means the option gains $0.10 per share ($10 per contract) for each 1% increase in IV.
Before earnings, IV rises as traders expect bigger moves. After the event, IV drops — the IV crush. You can be right about the direction and still lose money if the vega loss cancels your delta gain. Vega is highest for at-the-money options with distant expirations.
The Greeks don't exist in isolation. A complete picture requires looking at all four. You might buy a call (positive delta) and accept the time decay cost (negative theta) because you expect a big move. You'd check that vega is reasonable — you're not overpaying for volatility — and that gamma will amplify your gains as the stock moves in your direction.
For an iron condor, you'd want low delta (market-neutral), negative gamma (you want the stock to stay put), positive theta (you're collecting time decay), and negative vega (you benefit from falling volatility).
Build any position in the Options Profit Calculator and see the net Greeks update in real time as you adjust strikes and expirations.