The three options Greek that have the highest influence on the price of the option are the delta, theta and vega. Not fully understanding it is like jumping into the water to swim without knowing what is beneath it.

Delta is the ratio of change in the option’s price in relation to the change of the underlying stock’s price. A delta of 0.5 means that for every $1 change in the stock’s price, the options will have a $0.50 change. The deeper in-the-money the option, the higher is the delta.

Theta is the “time decay.” The further the expiration date, the more time value (also known as extrinsic value) the option has. The options which is closer to the stock’s price, the higher is also the time value.

Vega is the “volatility.” When the market or the underlying stock volatility increase, the options premium will increase and decreases when the volatility decrease. Volatility becomes more apparent in options that are closer to expiration.

Many novices got excited over a weekend seminar on trading for hope rather then options, starts to jump in for the excitement. They buy far out-of-the-money options because it looks cheap and finding out later that it doesn’t moves very much because the delta is very low or seeing the value diminishing when the volatility shrink. They’ll then let it as it is hoping that there will be a big move in the stock so that the options will increase back its value and many times the options will expire worthless on expiration right in front of their eyes. It’s a painful lesson indeed.

“The only new thing in the world is the history you don’t know” - Harry S. Truman

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