Option Trading Lesson 1.3

The primary Greeks (Delta, Vega, Theta, Gamma, and Rho) are calculated each as a first partial derivative of the options pricing model.

What Is Delta?

Delta (Δ) represents the rate of change between the option's price and a $1 change in the underlying asset's price. Delta values can be positive or negative depending on the type of option. 

Call option delta- always ranges from 0 to 1 because as the underlying asset increases in price, call options increase in price.

Put option delta- always range from -1 to 0 because as the underlying security increases, the value of put options decrease.

• Delta expresses the amount of price change a derivative will see based on the price of the underlying security (e.g., stock).
• Delta spread is an options trading strategy in which the trader initially establishes a delta neutral position by simultaneously buying and selling options in proportion to the neutral ratio.
• The most common tool for implementing a delta spread strategy is a calendar spread, which involves constructing a delta neutral position using options with different expiration dates.

For example, if a stock option has a delta value of 0.65, this means that if the underlying stock increases in price by $1 per share, the option on it will rise by $0.65 per share, all else being equal.

What Is Theta?
Theta (Θ) represents the rate of change between the option price and time, or time sensitivity - sometimes known as an option's time decay. Theta indicates the amount an option's price would decrease as the time to expiration decreases, all else equal.

• Theta increases when options are at-the-money, and decreases when options are in- and out-of-the money. 
• Options closer to expiration also have accelerating time decay. 
• Long calls and long puts will usually have negative Theta; 
• Short calls and short puts will have positive Theta.

Theta increases when options are at-the-money, and decreases when options are in- and out-of-the money. Options closer to expiration also have accelerating time decay. Long calls and long puts will usually have negative Theta; short calls and short puts will have positive Theta.

Source: Investopedia