# Options Contract

An contractual agreement to facilitate an asset transaction with an agreed price, quantity, and date.

A financial derivative based on underlying stock price. https://www.investopedia.com/terms/o/optionscontract.asp

## Pricing

Options pricing is described by both the price of the underlying stock and a set of parameters that define how the contract price moves in relation to the stock price over time. These parameters are known as the options greeks or, simply, “the greeks”.

### Delta

The number of currency units that the option would increase in price when the underlying stock price changes by one unit.

For example, if a call option of ACME Inc is valued at $4 with a **delta** of 0.70 (read “seventy”) and then the stock price of ACME Inc increases by $1, the value of the call option is now expected to be valued at $4.70.

### Gamma

The rate of change of Delta.

For example, if a call option of ACME Inc is valued at $4 with a **delta** of 0.70 (read “seventy”) and then the stock price of ACME Inc increases by $1, the value of the call option is now expected to be valued at $4.70. If the **gamma** of the contract is 0.06 (read “six”), the delta will now be 0.76. When the stock price increases by another $1, the option will now be expected to be valued at $5.46 ($0.06 + $0.70 + $4.70).

### Theta

The daily rate of increase of the option’s price. Will almost always be negative, as nearly all options contracts are subject to time decay.

For example, if a call option of ACME Inc is valued today at $4 with a **theta** of -0.10 (read “negative 10”), it’s expected to be valued at $3.9 ($4−$0.10) tomorrow, all things being equal.

### Vega

The number of currency units that the option would change in price as the percentage of implied volatility of the underlying stock changes.

For example, if a call option of ACME Inc is valued today at $4 with a **vega** of 0.03 (read “three”), when the implied volatility of the underlying stock increases by 1%, the price of the option increases by 3 cents to $4.03.

https://www.youtube.com/watch?v=jN4QODy000Y https://www.investopedia.com/trading/getting-to-know-the-greeks/