Option Greeks Explained: Delta, Theta, Gamma, Vega & Rho
Team Sahi
Option trading is not only about predicting direction.
It is about understanding how option contracts are priced and how their value changes over time.
Every option premium is continuously influenced by time, price movement, volatility and interest rates.
These influences are measured through a set of parameters known as Option Greeks.
The Greeks quantify how an option’s value responds to changes in market conditions.
They do not predict price.
They explain why a trade gains or loses value even when price appears stable.
You can view all Option Greeks in real time inside Sahi’s Option Chain, allowing you to evaluate strike behaviour, decay, volatility sensitivity and probability before you place a trade.
This guide documents each major Greek, how its values behave, and how traders use them to manage risk, choose strikes and structure trades more effectively.
1.Delta — Sensitivity to Price Movement
Delta measures how much an option’s premium changes for every one-point movement in the underlying index.
Delta tells you how much your option premium should theoretically move if Nifty moves by 1 point.
It is the first and most important Greek because it defines the speed, stability and realism of your trade’s profit potential.
Delta is not a prediction tool.
It is a payoff structure tool.
It tells you:
- how fast your P&L will react
- how much movement is required to recover decay
- how realistic your profit expectation is
- how survivable your position is in sideways markets
Delta Value Ranges
| Option Type | Delta Range | Interpretation |
|---|---|---|
| Call Option | 0 to +1 | 0 = no reaction, +1 = near point-for-point movement |
| Put Option | 0 to –1 | 0 = no reaction, –1 = near point-for-point movement |
A Delta of 0.10 means the option premium will change approximately ₹0.10 for every 1-point move in Nifty.
A Delta of 0.50 means the premium changes ₹0.50.
A Delta of 1.00 means the option behaves almost like a futures contract.
Low Delta means slow reaction.High Delta means fast reaction.
How Delta Changes Across Strikes
| Strike Type | Typical Delta | Structural Meaning |
|---|---|---|
| Far OTM | 0.05 – 0.20 | Low probability, lottery-like behaviour |
| Slight OTM | 0.20 – 0.40 | Speculative, movement-dependent |
| ATM | 0.45 – 0.55 | Balanced, realistic payoff |
| ITM | 0.60 – 0.90 | High-probability, capital-preserving |
Far OTM options are cheap because they have low probability and slow reaction speed.
They require large and fast price movement to produce meaningful profit.
ATM options provide the most balanced combination of:
- responsiveness
- liquidity
- manageable decay
- realistic profit probability
ITM options are more expensive, but they preserve capital better because they react faster to price movement and contain intrinsic value.
Delta and Probability
Delta is commonly used as an approximate probability indicator of an option expiring in-the-money.
For example:
- A call with Delta 0.20 has roughly a 20% chance of finishing ITM
- A call with Delta 0.50 has roughly a 50% chance
- A call with Delta 0.80 has roughly an 80% chance
This is not exact probability, but it provides a reliable structural estimate for strike selection.
Delta and Risk Management
Delta also determines:
- how fast losses accumulate
- how effective your stop loss will be
- how quickly profits can be locked
- whether your trade can survive sideways price action
Low-delta trades bleed faster under Theta because they do not move fast enough to offset time decay. High-delta trades require less movement to break even.
Why Delta Matters
Most retail losses occur not because direction was wrong but because the selected option did not structurally support the view.
Traders often choose far OTM options with very low Delta.
These options react slowly to price movement and require unusually large and fast index moves to generate meaningful premium gains.
Even when the index moves in the correct direction, the option’s Delta is too weak to offset time decay and volatility compression, causing the trade to lose money despite being directionally correct.
Traders were right. Their Delta was not.
2.Theta — Time Decay
Theta measures how much premium an option loses each day purely because time passes.
This loss occurs even if the market does nothing.
Price can remain completely unchanged and your option can still lose value.
Theta is the most underestimated force in option trading because it works silently and continuously.
While price movement feels dramatic, time decay works in the background, slowly compressing the probability of your trade succeeding.
Theta Behaviour by Position
| Position | Theta Behaviour | Structural Meaning |
|---|---|---|
| Option Buyer | Negative | Time works against the buyer |
| Option Seller | Positive | Time works in favour of the seller |
For every passing day, option buyers lose premium.
Option sellers gain even when price remains unchanged.
This is why selling strategies structurally favour time rather than prediction.
How Theta Accelerates Near Expiry
Theta does not decay in a straight line.
It decays exponentially.
As expiry approaches, the remaining time for price to move reduces rapidly causing the option’s time value to collapse at an increasing rate.
This creates three critical behaviours:
| Strike Type | Theta Behaviour |
|---|---|
| ATM | Fastest decay |
| OTM | Rapid decay, often to zero |
| ITM | Slower decay due to intrinsic value |
ATM options lose the most because their entire premium is made up of time value.
OTM options decay rapidly because they lack intrinsic value protection.
ITM options decay slower because part of their premium is already intrinsic.
In the final days and hours before expiry, ATM options can lose 30–70% of their value within minutes, even if price stays inside a narrow range.
Theta and Trade Survival
Theta defines:
- how long your trade can survive without movement
- how much movement is required to recover decay
- how quickly hesitation becomes loss
- whether your strategy is structurally viable
Low-delta options bleed faster under Theta because they do not move fast enough to offset decay.
This is why many “correct” trades still lose money.
Why Theta Matters
Most retail losses do not occur because the market moved against them; they occur because time collapsed the premium before price could reward the trade.
Theta is why expiry trading punishes hesitation.
Theta is why slow exits feel unfair.That is why timing matters more than prediction.
3.Gamma — The Force That Turns Calm Markets Violent
Gamma measures how much Delta itself changes when the underlying index moves by one point.
Delta tells you how much your premium moves.
Gamma tells you how unstable that movement becomes.
When Gamma is low, the premium reacts in a controlled and predictable way.
When Gamma rises, the same price movement produces disproportionately larger premium swings.
This transition is not gradual.
Near expiry, Gamma rises sharply often referred to as a Gamma Blast or Hero Zero.
What Is a Gamma Blast
A Gamma Blast occurs when a large concentration of open interest sits near the ATM strikes close to expiry.
As price moves toward or away from these strikes, Delta begins to change extremely fast.
This causes the premium on the side aligned with the price move to spike sharply, while the opposite side collapses rapidly even when the index moves only modestly.
This is why:
- premiums suddenly double within minutes
- stops get skipped
- charts look calm but P&L swings violently
- traders feel “something snapped” in the market
It is not sentiment.
It is structural instability created by Gamma concentration.
Gamma Behaviour Near Expiry
| Condition | Gamma Behaviour |
|---|---|
| Far from expiry | Low and stable |
| Near expiry | Extremely high |
| ATM strikes | Highest Gamma |
| Deep ITM / OTM | Lower Gamma |
Gamma is highest around the At-The-Money (ATM) strikes, especially near expiry.
In this zone, even small index movements cause rapid changes in Delta, leading to sharp and aggressive premium expansion.
As price moves away from the ATM zone, Gamma falls quickly, reducing the market’s ability to sustain momentum.
This sudden loss of acceleration often causes early spikes to fade, resulting in sharp reversals and failed breakouts.
This is why expiry sessions repeatedly show sharp spikes followed by violent retracements.
Structural Impact of Gamma Blast
During Gamma Blast zones:
- tight stops become unreliable
- market orders face slippage
- manual exits lag price
- late entries become high-risk
Positions become unstable not because the market is “crazy” but because Gamma has structurally amplified movement.
Why Gamma Matters
Understanding Gamma allows traders to:
- reduce position size
- widen stops
- rely on automated exits
- avoid late entries
before instability begins.
4.Vega — Sensitivity to Volatility
Vega measures how much an option’s premium changes when implied volatility (IV) changes by one percentage point.
While Delta reacts to price movement, Vega reacts to volatility conditions.
It explains why an option can lose value even when price moves in the correct direction.
How Vega Works
Every option premium contains two components:
- Intrinsic value — based on where price is
- Time value — based on how uncertain the market expects future movement to be
Implied Volatility represents this uncertainty.
When IV rises, the market expects larger future price swings.
This increases option premiums.
When IV falls, the market expects calmer price behaviour.
This compresses premiums.
Vega measures how sensitive your option premium is to these volatility changes.
Vega Behaviour
| Condition | Vega Behaviour |
|---|---|
| High Vega | Premium reacts sharply to IV changes |
| Low Vega | Premium reacts mildly to IV changes |
Longer-dated and ATM options usually have higher Vega.Near-expiry options and far OTM strikes have lower Vega.
IV Expansion vs IV Contraction
| Volatility Condition | Impact on Premium |
|---|---|
| IV Expansion | Premium increases |
| IV Contraction | Premium decreases |
This is why:
- premiums can fall during a rising market
- breakout trades fail after events
- expiry reversals feel unfair
Price can move correctly but if IV contracts, premiums still lose value.
Structural Impact
Vega explains most IV crush losses.
IV crush typically occurs:
- after major news events
- near expiry
- after sharp intraday spikes
Traders who buy options in high-IV conditions are structurally vulnerable to Vega-based losses.
Why Vega Matters
Vega determines:
- whether buying is structurally favourable
- whether premiums are inflated
- whether post-event trades are viable
Ignoring Vega causes traders to confuse volatility compression with “bad luck.”
It is not luck.It is Vega.
5.Rho — Sensitivity to Interest Rates
Rho measures how much premium changes when interest rates change.When interest rates rise, call option premiums tend to increase while put option premiums tend to decrease, because higher rates raise the forward value of the underlying asset and shift option pricing accordingly
| Position | Rho |
|---|---|
| Call Buyer | Positive |
| Put Buyer | Negative |
Rho has a small impact on short-term trades but becomes relevant for long-duration options.
Why Greeks Matter
Charts show price direction.
Greeks explain how your option premium behaves while price moves.
Traders who understand Greeks structure trades more efficiently, manage risk more effectively and avoid structural losses.
This is the foundation of disciplined option trading.
Frequently Asked Questions (FAQs)
What are Option Greeks in simple terms?
Option Greeks are measures that explain how an option’s premium reacts to changes in price, time, volatility, and interest rates. They help traders understand risk and premium behaviour rather than predicting market direction.
Why is Delta important in options trading?
Delta shows how sensitive an option’s premium is to price movement. It helps compare strikes, assess probability, and understand how quickly profits or losses may accumulate.
How does Theta decay affect option buyers?
Theta decay reduces an option’s value as time passes, even if price does not move. This effect accelerates near expiry and impacts ATM and OTM options most strongly.
What role does Vega play in option pricing?
Vega explains how changes in implied volatility affect option premiums. A fall in volatility can reduce premiums even when price movement is favourable.
Is Rho relevant for index options in India?
Rho has limited impact on short-term index options like weekly Nifty contracts. It becomes more relevant for longer-duration options where interest rate changes matter more.
