Let's talk Greek

Options are complex and risky.  Unlike stocks, the price of options are dependent on numerous factors.  A set of factors that constitute properties of an option are what we refer to as the "Greek letters" or simply the "Greeks". As a professional trader, each letter measures some dimension of risk which must be incorporated in evaluating investment risk. The risk element can be mitigated or accentuated depending on formulated structured combinations.  As market conditions change, position analysis becomes essential in managing risks to a portfolio. A thorough "cause and effect" understanding of the Greeks is extremely important to forecast or project option valuations. The degree to which you manage the position(s) will determine the degree to your success.

Brief summary of the Greeks:

Sigma σ (Variability): Used to designate the spread about a mean (average). It measures the variability or spread of the data and is the key component to calculating implied volatility of options.

Delta δ (Directional Risk):The risk that the underlying instrument (i.e., stock) will move in one direction rather the another. The change in option price per given change of the underlying instrument.

Theta ϴ (Time Decay Risk): The risk that time will pass with no movement in the underlying options contract.

Vega ν (Volatility Risk): The risk that the volatility premium on the option is over or under stated will impact the price. The change in the option price is a function of the change in volatility of the stock price.

Gamma γ (Curvature Risk): The risk of a large price movement of the underlying options contract. This is a measure of sensitivity to a option position from large underlying price moves. 

Rho ρ (Cost of money Risk): The risk that cost of money (interest rates) will change over time.

Lambda   λ (Leverage Risk): The  risk of option's elasticity (or leverage value) as a percentage terms. Not generally used by professional traders.