This eCourse consists of two modules. Module 1 focuses on Vega, Theta, & Rho, the three key option Greeks that measure the sensitivity of an option price to changes in volatility, time to maturity, and the risk-free rate. It looks at how these measures different for options with different strike prices, levels of volatility, time to maturity, and moneyness.
Module 2 focuses on second-order option sensitivity measures vomma and vanna as these are the most important secondary Greeks from the point of view of most traders when constructing efficient delta hedges and engaging in volatility traders. Other second-order sensitivity measures are calculated in the spreadsheet that accompanies this tutorial.
On completion of this course, you will be able to:
- Recognize how vega measures the sensitivity of an option price to changes in volatility
- Recall the role of theta in measuring an option’s sensitivity to time to expiration
- Recognize how rho measures the sensitivity of an option to movements in the risk-free rate
- Recognize how vomma measures the sensitivity of vega to changes in implied volatility and can be positive or negative
- Recall how vanna measures the sensitivity of delta to changes in implied volatility and the sensitivity of vega to changes in the price of the underlying asset
- Identify other second-order option sensitivity measures such as charm, color, and speed
Module 1: Option Greeks - Vega, Theta, & Rho
Topic 1: Vega
Topic 2: Theta
Topic 3: Rho
Module 2: Option Greeks – Second-Order Sensitivities
Topic 1: Vomma
Topic 2: Vanna & Other Second-Order Sensitivities