A set of risk measures (Delta, Gamma, Theta, Vega, Rho) that quantify the sensitivity of an option's price to various factors like underlying price, time decay, and volatility.
The Greeks are mathematical measures that describe how an option's price changes in response to different variables. Named after Greek letters, the five primary Greeks are Delta, Gamma, Theta, Vega, and Rho. Understanding Greeks is essential for anyone trading options on the NSE, where the daily options turnover exceeds Rs 100 lakh crore in notional value.
Delta measures how much the option price changes for a Rs 1 move in the underlying. A Nifty 22,000 CE with Delta 0.50 means the option price increases by approximately Rs 0.50 for every Rs 1 increase in the Nifty. At-the-money options have Delta near 0.50, deep in-the-money options near 1.0, and far out-of-the-money options near 0. Delta also approximates the probability of the option expiring in-the-money — Delta 0.30 suggests roughly 30% probability.
Gamma measures the rate of change of Delta. It tells you how much Delta will change for a Rs 1 move in the underlying. Gamma is highest for at-the-money options near expiry. On Nifty weekly expiry day (Thursday), Gamma can cause explosive moves in at-the-money options — a phenomenon Indian traders call "Gamma explosion" where options can gain or lose 500-1,000% in the final hours of trading.
Theta measures time decay — how much value the option loses with each passing day, all else equal. For example, if a Nifty option has Theta of -5, it loses Rs 5 per day per lot. Theta accelerates as expiry approaches, especially for at-the-money options. This is why options sellers (writers) prefer to sell options with 3-7 days to expiry — they collect premium that decays rapidly.
Vega measures sensitivity to implied volatility changes. Before major events (Union Budget, RBI policy, election results), implied volatility rises, increasing Vega and inflating option premiums. After the event, volatility collapses ("IV crush"), and option prices drop even if the underlying does not move much. Many experienced Indian traders sell options before known events (collecting high premiums) and buy them during low-volatility periods. Rho measures sensitivity to interest rate changes and is the least relevant Greek for short-dated Indian options.
Formula
Delta = dOption Price / dUnderlying Price
Gamma = dDelta / dUnderlying Price
Theta = dOption Price / dTime
Vega = dOption Price / dImplied VolatilityIndia Context
Critical for Nifty/Bank Nifty weekly option trading. "Gamma explosion" on expiry Thursday is a well-known phenomenon. IV crush after budget/RBI events. SEBI 2024 reforms reduced weekly expiries to curb speculative options trading.