The Greeks, explained

An option's price moves for several different reasons at once. The Greeks simply break that down, so a trader can measure and manage each source of risk separately. There are four you need to know.

Delta: sensitivity to price

Delta answers: how much does the option's price move for a £1 move in the underlying stock? A call with a delta of 0.6 gains about £0.60 for every £1 the stock rises. Calls have deltas from 0 to +1; puts from −1 to 0. At-the-money options sit around 0.5. There's a neat bonus interpretation: delta also roughly approximates the probability the option finishes in the money — a 0.6 delta means about a 60% chance.

Gamma: how fast delta changes

Gamma measures how much delta itself changes as the stock moves. High gamma means the option's sensitivity is unstable and shifts quickly — it's highest for at-the-money options near expiry. Option buyers are "long gamma": moves in their favour accelerate their gains. Sellers are "short gamma": moves against them accelerate their losses.

Vega: sensitivity to volatility

Vega measures how much the option's price changes when expected volatility changes by 1%. Higher expected volatility makes options more valuable — there's more chance of a big move — so vega is positive for anyone holding options. This is why options get expensive before earnings (volatility expectations rise) and then lose value right after (the "volatility crush" as uncertainty resolves).

Theta: the cost of time

Theta measures how much value an option loses each day, all else equal. Time is the option buyer's enemy: an option is worth less with each day that passes, and that decay accelerates in the final weeks before expiry. This is the fundamental trade-off in options — buyers get gamma (they benefit from big moves) but pay theta (time decay); sellers collect theta but are exposed to big moves. There's no free lunch.