 Hey guys, what is going on? It's Bracad23 here with Xtrades. Today, we're going to talk about something that's very important in options, especially if you're new to trading and unfamiliar with them is the Greeks. So the Greeks are really important in driving and just being the foundation of option prices. So a lot of these can be used along with your price targets to really help you pick the right option strikes and expirations for your own risk tolerance. So getting a better understanding of the Greeks and how they all interact together can really help you hone your skill better if you're trading options so that you can really target those strong risk to reward trades. So without any further ado, we're just going to go into kind of a high level synopsis of what the main Greeks are, the four Greeks that I have laid out here. We're going to go into a little bit of detail about them and then I'm going to give you some examples about how you can use them as proxies and you can try and solve the examples and then we'll go over the answers with it together. So theta is what we'll kind of start things off with and this is pretty straightforward, but it essentially measures the change in the contract as time passes. So this is like the cost of you swing the option for a day, swing the option overnight, is essentially the theta. And if you're doing a buy to open, it's always going to be a negative value. If you're going to sell the open contracts, theta is going to be a positive value. Delta essentially measures the change in the contract for a corresponding $1 change in the underlying stock price. So for calls, for example, delta will be in between zero and one and for puts, the delta will be in between negative one and zero because it's really honed in on that increase by $1. So obviously, you know, a put is not going to have a positive delta because if the stock increases by $1 then the option price wouldn't improve. It would actually get worse because that would work against your buy to open put option, for example. So essentially it's saying, if the price moves $1, this is what you could expect your option price to be if it goes up by $1 and that same that same delta can be used to project prices. If your option contract were to fall by a dollar essentially, or if the underlying fell by $1, then you could also project your option price to the downside. Gamma measures the rate of change for the delta. So this is just saying after that first $1 move that gamma shows you how much delta will increase for the next $1 move. So delta doesn't stay the same over time. So it's really just the impact to your delta if the underlying stock were to increase by a dollar. This tells you your new delta once you add it to the previous delta. As far as Vega goes, this simply measures the change in your contract by the given change in implied volatility. So this takes the implied volatility and for, you know, plus or minus percentage of implied volatility. It'll take that and multiply it by this Vega factor, which is used to give you that the value of Vega and the change in Vega, which you can relate back to your option premium. So again, this is just very high level and we'll go into a little more detail below, but essentially this is an example of, you know, buying stock XYZ. You can see that we have a few situations that are explained here where we go into detail about the contracts as far as the implied volatility is. The delta, the gamma, the theta, and the Vega. So you have all the grease that you need in order to do this calculation. And then we're also going to just give you a straightforward and simple scenario, which is assuming same day is purchased, prices increased by $1 and IVS increased to 30%. What is the approximate value of your option contract? So go ahead, just you can take notes, pause the screen, and just take a second and try and calculate on your own based on the conversation we just had and based on your understanding of the Greeks at a high level using the information on this slide. So go ahead and pause the screen now before I move on to the answer and explanation. So as far as the details and the answer goes, the price of the underlying increased by $1, okay? So we know that there's no impact to gamma that we need to calculate for this because there's really no price move beyond that $1. So gamma doesn't impact this calculation, although it does mean that if there was another dollar move that the gamma would be involved and delta would be higher. So we obviously just have to take delta into account here, no gamma. Additionally, no time has passed so theta will remain unchanged. I mean, obviously theta changes even throughout the course of the day sometimes, but assuming there's a long, you know, where weeks out from expiration, just assume that no time has passed. We're not kind of looking for tricky answers to these questions. It's just to make sure you have a good understanding of how they function generally. And then the IV increased and will need to be taken into account via Vega. So we have just the calculation written out down here. The current price is $1. We know that the delta is 0.08. We know Vega is 0.02. And we saw that 3% increase in vague or implied volatility, which means that our Vega value has increased our option contract 0.06 or 6%. And there's been no increase to theta or no impact to theta and no impact to gamma for this simulation. So that puts our projected price at $1.14. So, you know, assuming this situation occurred, you'd be looking at, you know, a 14% increase in your option contract, given this scenario. Now, this one was pretty straightforward. There's no real, you know, theta to incorporate. There's no gamma. So we're going to go into a slightly more complicated answer for the next one that you might have to spend a little bit more time on. So for this example, again, assuming all the same general attributes with the implied volatility, data, gamma, delta, gamma, theta and Vega, this is the same exact contract and grief that we were looking at in the previous scenario. But the situation has changed. So assuming one day has passed since entering the contract, the underlying price of XYZ has increased by $2 and IV has decreased by 2%. What is the approximate value of your option contract? So go ahead again, take a moment, pause the screen and write down your calculation and try and get to the answer that you see best fit based on the data given. So go ahead and pause it. I'm going to move on to the details and answer on the next slide. Okay, so as far as the details and answer goes, the price of the underlying increased by $2, which means now we need to leverage gamma. Additionally, one day has passed, so theta will impact the contract as well. So this one incorporates delta, gamma, theta and Vega, because we know that over this period of time, for whatever reason, the implied volatility has decreased. So we need to take this into account as well using Vega. So the current price of the option is $1 when we bought it. As far as delta goes, we're looking at a 0.18 total impact through delta and gamma. So again, the reason being for this is for that first dollar move, we had delta 0.08. But as we know, gamma is the rate of change for delta. So that 0.02 gets added and our delta after that $1 move becomes 0.10. So then that makes our total delta and gamma for this $2 move 0.18. That being said, our Vega decreased by 2%. So then we take that 0.02 and multiply it by the negative 2% decrease, which gives us a negative 0.04. And then we also know that theta was 0.10 and needs to be subtracted. Granted, I'm sorry, I didn't specify that it was a bit open contract. But at any rate, theta needs to be subtracted in this case. And that leaves our projected price at 1.04 or a 4% increase from the current price. So again, this is just a good way to give yourself an understanding for how all of these interact. And as you can tell it, if you have a good understanding of the delta, the gamma, how much your theta premium is, and if you use implied volatility and historical volatility, you can get a good idea of the kind of expected moves and price targets you could have for the underlying stock and really leverage these options and the Greeks to give you a strong understanding of what your options would look like if those price targets were reached, because you have this deeper understanding of everything that drives them. And that's why it's so important. And whether you're trading same-day expiry or longer dates, it's very important for you to understand all of the things that contribute to future price movements and the price movements of these derivatives. So I hope that this was helpful and I hope that you guys learned something, especially if you're new to trading options. This is definitely something you should understand before diving in. And if you guys have any questions at all, please let me know in the comments below. I'm sorry if I might have kind of gone over something quickly. It is kind of a complicated concept to explain at a high level, but if you guys have any questions, you can just submit them below and I'll do my best to answer them. And I hope that you guys had a great trading day and I hope you stay green. So thanks so much for joining, guys. Have a great day.