relationships between price, delta and gamma

01:17 Mins Read

What's the interconnection between Price, Delta and Gamma? Find out in this video

Transcript

relationships between price, delta and gamma Over the years, many methods of options pricing have been analysed. This is because, it is a complex process to value options. So today, let's understand Delta and Gamma! The first option Greek, delta is a derivative of option price and is thus known as the first order derivative. Delta of an option is a variable and changes for every change in the underlying and premium Gamma is the derivative of Delta, and hence is known as the second order derivative. It is the rate of change in Delta for every 1 point move in the price of the underlying. Gamma captures the rate of change of delta, it helps us get an answer for a question such as “What is the expected value of delta for a given change in underlying” This is how Delta & Gamma as an Option Greek, capture the effect of the direction of the market To help you understand more about Option Greeks, read about Using Options Greek on Smart Money by Angel Broking.

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