What are the Option Greeks?
- Delta (Δ): Measures the rate of change of the option's price with respect to changes in the underlying asset's price.
- Gamma (Γ): Measures the rate of change of delta with respect to changes in the underlying asset's price.
- Theta (Θ): Measures the rate of change of the option's price with respect to time decay.
- Vega (ν): Measures the sensitivity of the option's price to changes in implied volatility.
- Rho (ρ): Measures the sensitivity of the option's price to changes in interest rates.
What is Implied Volatility (IV)?
Implied volatility represents the market's expectation of the underlying asset's volatility over the option's life. Higher IV suggests higher option premiums, while lower IV suggests lower premiums.
What is Open Interest?
Open interest refers to the total number of outstanding option contracts that have not been settled or closed. It indicates market activity and liquidity for the option.
How does open interest affect trading decisions?
High open interest suggests high liquidity and trading activity, making it easier to enter and exit positions. Low open interest may indicate less liquidity and potential trading challenges.