Greeks and Spreads

IV Rank:a metric that indicates if implied volatility is higher or low in an asset, based on past implied volatility data for that asset.

IV Percentile:a metric that indicates the percentage of past periods where an asset’s implied volatility was higher or lower than the current implied volatility level.

Rogers-Satchell:an estimator for measuring an asset’s volatility that incorporates drift term, with an average return not equal to zero. Rogers-Satchell does not incorporate price movements between trading sessions, but it tends to provide optimal volatility estimates when an asset is trending higher or lower.

Yang Zhang:a historical volatility estimator that incorporates opening price jumps and the drift, with a minimum estimation error. Yang Zhang volatility combines the overnight (close-to-open) volatility and a weighted average of the Rogers-Satchell volatility and the day’s open-to-close volatility.

Relative Volume:a metric that indicates how many shares or contracts of an asset have traded as a function of how many shares or contracts have traded on average over a period.

Average Daily Volume:the sum of the daily volume for X number of days divided by the number of days (X).

Open Interest:the total number of outstanding long and short derivative contracts.

Skew:in math, a distortion or asymmetry deviating from a symmetrical bell curve. In finance, negative skewness indicates a probability of a negative return, while positive skewness indicates a likelihood of a positive return. Skew is synonymous with tail risk.

Greeks:mathematical calculations measuring various factors that impact put and call option prices.



Delta:or hedge ratio that compares the change in the price of an underlying asset with the change in the price of a put or call option.  Call deltas are positive values whereas put deltas are negative values.

Gamma:the rate of change in a put or call options delta or hedge ratio per a one percent move in the underlying asset’s price.

Vega:the increase or decrease in a put or call option premium for each one percent change in implied volatility.

Theta:the rate of decline in the value of a put or call option because of the passage of time, or the time decay of options over time.

Rho:a metric that determines put and call options sensitivity to changes in the risk-free rate of return or interest rates. The amount of premium an option will gain or lose with a 1% change in interest rates.

Tilt:  ask Lex on this one.

 

Sub Greeks (secondary):



Vanna: the change in option delta for a change in implied volatility. Call options have positive vanna, while put options have negative vanna.

Vomma:the rate at which the vega of an option will react to the volatility in the underlying market.  

DvegaDtime: the negative value of the partial derivative of vega as a function of time to maturity- How fast vega changes as a function of time decay.

Charm: or delta decay- the rate at which the delta of a put or call option changes as a function of time. Charm is the second-order derivative of an option’s value, once to time and once to delta, and is a derivative of theta, which measures the time decay of an option.

Lambda: the level of leverage or gearing to an underlying asset a put or call option provides as the option’s price changes.

Epsilon: (synonymous with eta, vega, omega, and kappa) the change in the price of a put or call option as a function of a 1% change in implied volatility. The first derivative of an option’s price with respect to implied volatility.

 

Spreads:



Ratio Spreads- an options strategy that involves holding a position of an unequal number of long and short positions in put or call options in the same underlying asset with different strike prices and the same expiration date.

Put/Call credit spreads-the simultaneous purchase and sale of options contracts on the same underlying asset where the premium paid for the option purchased is lower than the premium received for the option sold.

Call and put bull/bear spreads:A bull call or bull put spread rises in value when the underlying asset’s price moves higher. A bull call or put spread has a net positive delta. A bear call or bear put spread rises in value when the underlying asset’s price falls. A bear call or put spread has a net negative delta.

Condors:a limited-risk, non-directional options trading strategy conditions of four options at four different strike prices.

Iron Condors: an options strategy that earns the maximum profit when the underlying asset classes between the middle strike prices at expiration. Iron condors consist of two put options (one long and one short) and two call options (one long and one short), all four strike prices, all with the same expiration date.

Butterflies:a limited risk, non-directional options strategy with a high probability of earning a limited profit when the futures volatility is expected to be lower or higher than the asset’s current volatility. A butterfly combines both bull and bear spreads. A butterfly strategy has a fixed risk and capped potential profits or losses.  

Iron butterflies:or an ironfly, is a neutral outlook options strategy that involves buying and selling four call and put options, combining a bull call spread and a bear put spread. A long iron butterfly benefits from a decline in implied volatility.

Boxes:a long box spread combines buying a bull call spread, and a matching bear put spread or two vertical spreads with the same strike prices and expiration dates.

Calendars (Time):buying and selling the same type of option (calls or puts) for the same underlying asset at the same strike price for different expiration dates.

Diagonals:a long and short position in two call options or two put options with different strike prices and different expiration dates.

Rolls:an option roll up is closing an existing option position while simultaneously opening a new risk position in the same option at a higher strike price. An option roll down is closing an existing options position while simultaneously opening another with a lower strike price.

Synthetic Long/Short Stock:option strategies that simulate the payoff and risk of a long or short position in a stock. A synthetic long is buying at-the-money call options and simultaneously selling at-the-money put options for the same expiration date. A synthetic short is buying at-the-money put options and simultaneously selling at-the-money call options for the same expiration date.

Seagull: a three-legged option trading strategy that consists of two call options and a put option or two put options and a call option. A bullish seagull strategy involves a bull call spread (debit spread) and the sale of an out-of-the money put.