Not investment advice. Educational reading. See Disclaimer.
L.8 · BEGINNER · 3 MIN
The Four Greeks at Literacy Level
Every option contract carries four directional risks at once and the option chain rolls them up into a single price. Until you can name those four risks separately, every move in the option's value will feel mysterious — the stock went up but the contract did not, or the stock did nothing and you lost money anyway. The Greeks are the four levers behind that price. This lesson keeps the math out and the intuition in: what each lever measures, which direction it pushes, and how to recognize when one of them is dominating the others. The full quantitative depth lives in the 201 path; this is literacy.
How much the option moves per $1 in the stock — and roughly the odds of finishing ITM
Theta
Time passing
Hurts every day
The daily rent you pay for holding optionality
Vega
Implied volatility change
Helps when IV rises, hurts when IV falls
How much the option moves per 1 percentage-point change in implied vol
Gamma
How fast delta changes
Helps long buyers, hurts short sellers
The curvature — the option's directional bet gets stronger as the stock moves toward strike
§ 02
Greeks come paired. Long options are long delta (if calls) and long vega and long gamma, but short theta — you pay every day for the chance of a payoff. Short options are the mirror: short delta or gamma, but long theta — you collect every day in exchange for taking on the risk. There is no free Greek. Every position is harvesting one or two of them and paying for the others.
§ 03
The most useful daily question for any option position is which Greek is dominating right now? Near expiration, theta dominates for at-the-money options — the daily decay swamps everything else. On earnings day, vega dominates — the implied-vol move overwhelms the directional move. On a strong news day in a deep-ITM call, delta dominates — the contract moves dollar-for-dollar with the stock. Mature options thinking is naming which Greek is currently in charge, not memorizing all four equally.
§ 04
Gamma is the trap. Sellers of options are short gamma, which means their directional exposure gets worse exactly when the stock moves against them. A short call that started delta-neutral can become deeply short-the-stock if the stock rallies through the strike — and the trader who thought they had a flat book now has a runaway position. Gamma risk is the reason naked-option writing is dangerous in a way that buying options is not.
§ 05
Pull any liquid stock at a 30-day expiration and read the Greeks column on the at-the-money strike. Note the delta (~0.50), theta (a small negative number), and vega. Now jump to the same strike at a 7-day expiration. Notice the theta has roughly tripled — the same option is bleeding far faster near expiration. That single comparison is the entire intuition behind why short-dated long options are unforgiving even when you are directionally right.
§ 06
A trader holds a 7-day ATM long call. The stock barely moves all week but implied volatility falls sharply on a calm news cycle. The call loses most of its value. Which Greeks tell that story?
Five questions · AI feedback
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Sit with the ideas.
Which framing of the four Greeks is most useful for a retail investor who buys options without using a pricing model?
