Module 3 of 5 in Derivatives and advanced market concepts
Volatility and options Greeks
Historical and implied volatility, delta, gamma, theta and vega, time decay, and why option prices move the way they do.
3 lessons in this module. Progress is saved in your browser as you go.
Option prices depend on more than the share price. This module explains volatility, how the market's expectation of it is built into premiums, and the Greeks that measure how a premium responds to changes in price, time and volatility.
By the end of this module you should be able to
- Distinguish historical volatility from implied volatility and explain how volatility affects premiums.
- Interpret delta, gamma, theta and vega for a simple option position.
- Explain how time decay accelerates near expiry and who it helps and hurts.
Lessons in order
Module test
10 questions, chosen at random from a bank of 30 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Moneyness, intrinsic value and time value: Volatility mainly affects the time value explained there.
- Averages, spread and volatility: Historical volatility is the standard deviation of returns explained there.