Option Chains + Option Greeks
Understanding the Option Chain and Option Greeks, a look at some of the basic parts of the option chain and option greeks.
OPTION CHAIN
Strike Price: The strike price is the price value that the option is providing the right for. This is what the contract is bound to. This is also primarily how all the different options are categorized. For Example if the strike price is $37, then the option provides the right to buy (call) or sell (put) at $37 until it expires.
Expiration: This is simply the length of time the option is provided for and how all the different spreads of strike prices are cataloged. Typically viewed as: 8 DEC 17 100(Weeklys) this means that all the options in this spread expire on December 8, 2017, each contract is for 100 shares, and their classified as "weekly" options.
Expected Move: Is usually found next to the implied volatility at the opposite end of the expiration date, and looks like (+/- .775). This is a constantly changing number based on the current price action and is an estimate of how much the stock is going to move within the expiration of the option. For example if the above expected move was for an option that expired in 3 days then it is estimating the stock is going to move $.775 within the next 3 days.
Implied Volatility: is typically found next to the expected move at the opposite end of the expiration. This is typically used to estimate the amount of pressure in the stock. Usually fear. A high implied volatility is usually seen as an increased probability of seeing a radical change in the price and investors typically associate it with the stock selling off, but not always.
MARK, BID, ASK, LAST are all the same concepts for an option as they are for a stock. These are the different price tags for the particular option. The Options are always priced as Per Share of the Stock, in other words it is the unit cost, the cost per share, not the cost per contract. To calculate the cost per contract multiply the unit cost by 100.
Volume: The volume is the amount of Option Contracts that have traded so far that day. Calculated similar to stock volume, however when an Option is exercised and not bought/sold it is not counted here. The same concepts in stocks also apply in options apply in terms of liquidity.
Open Interest: This is the running total of the amount of outstanding contracts in the market. This is where the volume goes at the end of the day. When an Option Contract is exercised it however is subtracted from the open interest since the contract is no longer outstanding. The same concepts in stocks also apply in options in terms of liquidity, open interest is just another variable to consider.
OPTION GREEKS
The Option Greeks will be updated below because there is not enough text allowed in this box.
OPTION CHAIN
Strike Price: The strike price is the price value that the option is providing the right for. This is what the contract is bound to. This is also primarily how all the different options are categorized. For Example if the strike price is $37, then the option provides the right to buy (call) or sell (put) at $37 until it expires.
Expiration: This is simply the length of time the option is provided for and how all the different spreads of strike prices are cataloged. Typically viewed as: 8 DEC 17 100(Weeklys) this means that all the options in this spread expire on December 8, 2017, each contract is for 100 shares, and their classified as "weekly" options.
Expected Move: Is usually found next to the implied volatility at the opposite end of the expiration date, and looks like (+/- .775). This is a constantly changing number based on the current price action and is an estimate of how much the stock is going to move within the expiration of the option. For example if the above expected move was for an option that expired in 3 days then it is estimating the stock is going to move $.775 within the next 3 days.
Implied Volatility: is typically found next to the expected move at the opposite end of the expiration. This is typically used to estimate the amount of pressure in the stock. Usually fear. A high implied volatility is usually seen as an increased probability of seeing a radical change in the price and investors typically associate it with the stock selling off, but not always.
MARK, BID, ASK, LAST are all the same concepts for an option as they are for a stock. These are the different price tags for the particular option. The Options are always priced as Per Share of the Stock, in other words it is the unit cost, the cost per share, not the cost per contract. To calculate the cost per contract multiply the unit cost by 100.
Volume: The volume is the amount of Option Contracts that have traded so far that day. Calculated similar to stock volume, however when an Option is exercised and not bought/sold it is not counted here. The same concepts in stocks also apply in options apply in terms of liquidity.
Open Interest: This is the running total of the amount of outstanding contracts in the market. This is where the volume goes at the end of the day. When an Option Contract is exercised it however is subtracted from the open interest since the contract is no longer outstanding. The same concepts in stocks also apply in options in terms of liquidity, open interest is just another variable to consider.
OPTION GREEKS
The Option Greeks will be updated below because there is not enough text allowed in this box.
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10. Delta: This is the rate of increase or decrease to the options value, the ROI (Return on Investment). The Option Delta is calculated per every point the stock moves, and a point equivalent to $1. Basically it is the amount of ROI the Option yields for every $1 the stock moves. The Delta is a relative percent to the Options value, which means if the Delta is 20% then it pretty much stays around %20 to the options value whether or not the option decreases. For example if the Option is $.50 and the delta $.10 or %10, ff the option value decreases to $.40, then the Delta decreases as well but remains relative to being %10 of $.40. The ROI is no longer %10 of $.50 but %10 of $.40. Conversely this is not true when the Option Value Increases, the Delta increases until it reaches $1, the Delta can never exceed a $1 increase in the option value for a $1 increase in the stocks price, the maximum rate of increase is 1:1 from Delta to Stock Price.
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11. Gamma: This is the rate of increase or decrease in the value of Delta for every 1 point the stock moves. Gamma for the most part moves in the same direction of Delta, which means if Delta decreases the Gamma value is decreasing, and when the Delta Value is increasing the Gamma value is increasing. This ensures that Gamma does not accelerate or decelerate the value of Delta too quickly. When the Delta reaches $1 the Gamma goes to 0. In a longer term perspective Gamma is like a Bell Curve, when the Delta is low Gamma is high and increasing and as the Delta approaches $1 the Gamma begins decreasing until it reaches 0 at the exact moment the Delta reaches $1.
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12. Vega: Vega is the rate of increase or decrease in the Options value, calculated separately from the Delta for every %1 increase or decrease of the options implied volatility. Implied volatility not for the entire spread under the expiration but for the exact option at the exact strike price under that particular expiration. The higher the implied volatility, the more value Vega adds to the option, the lower the implied volatility, the less value Vega has to add to the options value.
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13. Theta: This is pretty much an increasing fixed percentage of the rate of decrease in the options value. This is what decreases the option premium to expiration so that when the option expires there is no longer any "time value" left. Theta however is a very slow moving percentage up until the last few days before the option expires, it is also for the most part a fixed percentage to the options value which means it doesn't matter if the option value is fluctuating from $4, $1, or $.4 if the theta is decreasing at the rate of %25 it is decreasing the "time value" of the option by %20 at the end of the day either being $1, $.25, or $.1 but this does not effect the intrinsic value. The intrinsic value is simply however much money the Option is in the money, meaning if it could be exercised right now it would be profitable. This difference is added into the options value, and is not effected by theta, this value alone remains at expiration. Theta can usually only be ignored on options that expire months away from the current date.
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14. Rho: is usually ignored and doesn't matter, especially for weekly options. This is because it is the rate of increase or decrease in the options value for every percent increase or decrease in interest rates. Typically these values are at a sub-penny level, and can be ignored.
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15. Extrinsic Value: This is the exact amount of the options value that is added from the time of the contract alone. This is the time value of the option, the amount paid for the length of time to own the contract.
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16. Intrinsic Value: This is the exact amount of the options value that is added from the strike price being in the money. This is the value of the option created from being "in the money", which simply means the option could be bought and exercised and this value would be yielded as a return. If the intrinsic value is $.30, then that is what would be yielded per share when exercised. If it is 0, then nothing is yielded per share if the option was exercised, and could even be a loss because there is no calculated value that states how much an option is out of the money.
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All of the numbers in the option chain (which includes the greeks) are constantly changing with every tick of the stock's price. Thank You, God Bless.
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A link to view the Option Chain
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Educational source to learn more:
www.tradesmartu.com/...ions-made-simple-101
www.tradesmartu.com/...ions-made-simple-101
