A trader in PM asked me how the Greeks work:…
Deltais how much an option will change in price for $1.00 in the underlying (it will be 50 when the underlying is at the strike just like a binary - a binary actually is call delta)
Gamma is how much the delta will change when the underlying price moves $1.00 - this will grow larger and larger and larger the closer the option gets to expiration as the delta has to be 1 or 0 and the underlying gets to be ATM (at the money)
Rho is how much the option will change in value if interest rates change (Pretty useless at the moment)
The following two components make up the premium in an option:
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Theta is how much the option will decay in 1 day - - this will grow faster and faster and faster the closer you get to expiration in the last 30 days specifically.
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Vega is how much the option will change in value if implied volatility changes by .1 This has more impact than all Greeks combined. The further you are from expiration the larger vega will be (unless near a earnings release) as more time means more can happen so more possible movement. (vega is like the air in the balloon - and theta is the balloon)
Since gamma grows more impact when you approach expiration and theta decays faster when you approach expiration - gamma is the price of theta - you take on more time decay for more gamma.
Side note: a binary is literally the delta of a call option. The price is = to the delta of a call option. Your trading delta, so gamma is the delta of your binary. Gamma grows faster as theta goes down hence binaries move faster the closer they are to expiration.