By Darrell Martin
There are various ways to explain price movement. Some traders look to the Greeks for an explanation. Greeks do not influence price movement. Understanding the concepts of the Greeks can help you understand how an option changes price. Instead of having an impact on the option, they reflect what the impact will be on the option’s price, should price, time, interest rates or implied volatility change. They do not have any impact on the binary’s price themselves.
Greeks do not have to be complex. You do not need to be a rocket scientist in order to understand their concepts. The formulas of the Greeks are an academic aspect of trading. It does not help you a great deal on short contracts to have the Greeks of a binary option. However, it is important to understand the concepts of what the Greeks measure, in order to understand what does impact the price of an option.
This series will explain what the five most common Greeks are in simple English terms. The five most common Greeks are:
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Theta
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Delta
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Gamma
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Vega
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Rho
Again, Greeks have ZERO impact on the price movement, so you do not actually need to know the Greek value. Understanding their basic concept simply helps you understand how and why the price moves. Do not make this hard and complicated.
The Greeks in short are a way to explain and help you to understand, as a trader, how the price moves in relation to the binary strike, in relation to when it expires, and in relation to upcoming expected movements or news. This will help you in your trading to better choose the right binary for the right strategy.