Options: reading the Greeks
An option buys you a choice at a fixed price, for a limited time. The Greeks estimate how much its price changes when the stock, time, or expectations change.
First, read the ticket
Section titled “First, read the ticket”Our fictional ABC $100 call gives its buyer the right to buy ABC shares for $100 each, before the option expires. That $100 is the strike, not the stock’s current price.
The premium is the price of that right. Assume a standard contract covering 100 shares. A $5.00 premium per share means $5.00 × 100 = $500 per contract.
Bid is what buyers offer; ask is what sellers want. The mark is the midpoint of the best displayed quotes: ($4.90 + $5.10) ÷ 2 = $5.00. It is a reference price; an order may fill at a different price.
IV 30% is implied volatility: how much annualized stock-price uncertainty is built into the option’s price. It is not a 30% chance of profit.
Why the price changes
Section titled “Why the price changes”Imagine a right to buy a share for $100. If the share becomes more valuable, that right usually does too. If time runs out, there is less opportunity for a favorable move. If bigger moves become possible, the choice becomes more valuable: the buyer can use it after a favorable move and let it expire after an unfavorable one. The premium is still a cost either way.
The Greeks put numbers on these effects. Each asks: if one input changes a little, with the others held fixed, what happens?
- Delta — stock movement. How much the option’s price changes for a $1 stock move. A call’s positive delta means it tends to gain when the stock rises.
- Gamma — delta’s movement. Delta itself changes as the stock moves. Gamma estimates how much delta changes for a $1 stock move.
- Theta — time passing. The price change from one calendar day passing. A bought option usually loses time value, even if the stock stays still.
- Vega — uncertainty. The price change for a 1 percentage point rise in IV, such as 30% → 31%. More uncertainty generally makes a bought call or put more valuable.
- Rho — interest rates. The price change for a 1 percentage point rise in the risk-free rate used to price the option. For a call, paying the strike later becomes more attractive when rates rise.
Keep two ideas separate
Section titled “Keep two ideas separate”Greeks describe the price now. Expiration has a simpler rule. At expiration, a call’s value per share is:
If you hypothetically paid $5.00 for this $100 call, the expiration break-even would be $100 + $5.00 = $105.00 per share, before fees. Finishing above the strike alone does not guarantee a profit: the premium must be recovered too.
A sensitivity is an estimate, not a forecast. In real trading, the stock, time, and IV can change together, and the Greeks change too. Even a rising stock can leave a call worth less if time decay or falling IV outweighs the gain. Robinhood’s quote guide explains these displayed units.