Option pricing models use Greek symbols to define the relationship between specific measurable changes in one area and the effect it has on the value of the option.
- The estimated change in value because of a one-point ($1) move in the underlying asset is called Delta.
- The estimated change in Delta because of a $1 move in the underlying asset is called Gamma.
- The estimated change in value because of one day going by is called Theta.
- The estimated change in value because the market is implying a 1% greater change in annualized volatility is called Vega.
These are the big four. There are many others, but they are hardly recognizable in the day to day movement of options and it would be data overload to get into them at this point in your education.
Next, you will learn how these Greeks are very effective for estimating the price change of options. We will go through several examples and talk our way through them to help make these concepts very real, very quickly.