Greeks Flashcards
(25 cards)
What is the primary purpose of Greek sensitivity measures in derivatives?
To assess the risk and sensitivity of derivatives to various factors.
What does Delta measure in the context of options?
The rate of change of an option’s price with respect to changes in the underlying asset’s price.
True or False: A Delta of 0.5 indicates that the option price will increase by 50 cents for every dollar increase in the underlying asset.
True
What is the significance of Gamma in options trading?
Gamma measures the rate of change of Delta with respect to changes in the underlying asset’s price.
Fill in the blank: The Greek that measures the sensitivity of an option’s price to the passage of time is called _____.
Theta
What does Vega measure in options?
The sensitivity of an option’s price to changes in the volatility of the underlying asset.
Which Greek is represented by the letter ‘Rho’?
The sensitivity of an option’s price to changes in interest rates.
What is the relationship between Delta and Gamma?
Gamma is the second derivative of the option’s price with respect to the underlying asset’s price, indicating how Delta changes.
True or False: A higher Vega indicates that an option is less sensitive to changes in volatility.
False
What is the purpose of using Greeks for compound options?
To evaluate the sensitivity of complex options that are based on other options.
Fill in the blank: The Greek that quantifies the impact of changes in the underlying asset’s price on compound options is called _____.
Compound Delta
What does Compound Gamma measure?
The rate of change of Compound Delta with respect to changes in the underlying asset’s price.
Which Greek is used to measure the time decay of compound options?
Compound Theta
True or False: Compound Vega measures the sensitivity of the price of a compound option to the volatility of the underlying options.
True
What is the main difference between normal Greeks and Greeks for compound options?
Greeks for compound options account for the additional layer of sensitivity due to the underlying options.
Which Greek is crucial for managing the risk associated with interest rate changes in compound options?
Compound Rho
Fill in the blank: A positive Delta indicates that the option price will move in the ____ direction as the underlying asset’s price increases.
same
What does a Delta of -1 imply for a put option?
The put option price will increase as the underlying asset’s price decreases.
True or False: Gamma can be negative for options.
False
What is the effect of a high Theta on an option’s price as expiration approaches?
The option’s price decreases more rapidly due to time decay.
Which Greek is particularly important for options traders during earnings announcements or major market events?
Vega
Fill in the blank: Sensitivity measures like Greeks are essential for effective ____ management in trading.
risk
What does a high Vega indicate about an option’s price sensitivity?
The option’s price is highly sensitive to changes in the underlying asset’s volatility.
True or False: Compound options have the same Greeks as standard options.
False
