aight step, quick and dirty options 101...we'll use tine's position as our example...
there are 4 main greeks that you need to worry about
:
delta
gamma
theta
vega
DELTA: has two meanings...it's mainly used to talk about the length of position...so 'tine's delta is
0.53, which means that for every option he holds (an option is for 100 shares of stock) it is like he is
53 shares long (0.53 * 100)...so each $24 CALL option will behave like 53 shares of stock...so he's 10 CALLS long meaning he's long 530 shares of stock...for every dollar the stock goes up, his position should get longer by 53 shares per contract...the secondary meaning of delta is probability...so the delta of the option loosely translates into the probability that it will finish in the money...so at this point in time the option has a 53% probability of finishing in the money...
GAMMA: this is the derivative of delta...it means for every dollar the stock goes up, delta will go up by this amount...so tine's position he has a gamma of 0.10 per contract...so for every dollar the stock goes up his delta will go up by 10...gamma accelerates as you get closer to the money and then will flatten out as the stock gets deeper and deeper in the money...so while tine's gamma is 0.10 right now, if the stock goes to $28 his gamma will be much, much less because the option will start to act more like the stock and less like the option...
THETA: this is time decay...as each day goes by the price of the option goes down by theta...so tine's theta is 0.03...so the value of his options will go down $0.03 for every day that passes...this accelerates as we get closer to expiry, going near exponential in the last week...
VEGA: this is volatility...for each percent that implied volatility goes up (down), the option will gain (lose) that much...so tine's vega is 0.02...so if the implied volatility of the option goes up (down) by 1%, the price of his options will increase (decrease) by $0.02...