Options Greeks and Implied Volatility
Understand delta, gamma, theta, vega, and implied volatility as option-price sensitivities, with a hypothetical calculation and clear limitations.
By Kru Kook (Krittiya Khunabrimas)
Greeks describe sensitivities, not trade signals
Options Greeks describe how a modelled option price responds to changes in other variables. Values change with strike, time remaining, volatility, interest rates, and the model used. They do not predict whether price will rise or fall.
Delta and gamma
Delta estimates the premium change when the underlying moves one unit, assuming other inputs stay constant. Calls commonly have positive delta and puts commonly have negative delta, but the size depends on the contract.
Gamma measures how delta changes when the underlying moves one unit. Delta is not constant, especially as price approaches the strike or expiry nears.
Theta and vega
Theta estimates the premium change as one unit of time passes. Option buyers need to account for potential decay in time value, but the effect is not necessarily linear and changes with price and volatility.
Vega estimates the premium change when implied volatility changes by one percentage point. For example, a vega of 0.10 points per 1% means modelled premium changes by about 0.10 points for a one-percentage-point IV change, all else equal.
Convert delta into baht: an illustration
Assume a call has delta 0.50 and the SET50 Options multiplier is THB 200 per point. If the index rises one point, the delta estimate is 0.50 × 1 = 0.50 premium points, or 0.50 × THB 200 = about THB 100 per contract, assuming all other inputs stay unchanged.
In real markets, delta, gamma, theta, and vega can change together. The actual move can differ from a one-Greek estimate.
What implied volatility means
Implied volatility (IV) is the volatility input that makes a model price consistent with the option premium quoted by the market. It is not a guarantee of realized volatility. When IV rises, premium often rises if other factors stay constant. Comparing IV across dates or strikes requires attention to time remaining and contract terms.
Use Greeks carefully
- Check the unit each Greek uses and whether it is quoted per contract or per point.
- Confirm the expiry and strike match your position.
- Read delta, gamma, theta, and vega together.
- Test multiple scenarios rather than relying on a single snapshot.
- Compare estimates with actual liquidity and trading costs.
Read TFEX’s Options Greeks explanation and our expiry payoff guide.