Defintions
Options Greeks Cheat Sheet
All examples below use BHP: current price $83.33, put strike $80, option price $1.15, 15 days to expiry.
Implied Volatility (IV)
What it is: The market's expectation of how much the stock price will move over the next year, expressed as a percentage.
| Value | What it means |
|---|---|
| 0–20% | Low volatility — stock expected to be calm |
| 20–50% | Normal range for most stocks |
| 50–80% | High volatility — big moves expected |
| 80%+ | Extreme volatility — options are expensive |
Your BHP put: IV ≈ 24% → Fairly normal volatility for a large ASX stock like BHP.
Delta (Δ)
What it is: How much the option's price moves when the stock moves $1.
| Value | What it means |
|---|---|
| 0.00 to +1.00 | Calls — rises when stock rises |
| 0.00 to −1.00 | Puts — falls when stock rises |
| ±0.50 | Roughly 50/50 chance of expiring in the money |
| ±0.80–1.00 | Deep in the money — moves almost like the stock |
| ±0.01–0.10 | Far out of the money — very unlikely to profit |
Your BHP put: Delta ≈ −0.20 → For every $1 BHP rises, this put loses ~$0.20. For every $1 BHP falls, it gains ~$0.20. Also read as roughly a 20% chance of expiring in the money.
Gamma (Γ)
What it is: How much delta itself changes when the stock moves $1. Think of it as delta's sensitivity.
| Value | What it means |
|---|---|
| High (0.05+) | Delta changes rapidly — option is very sensitive to price moves |
| Low (0.001–0.005) | Delta barely changes with price moves |
| Near expiration | Gamma spikes dramatically |
Your BHP put: Gamma ≈ 0.07 → If BHP drops $1, delta moves from about −0.20 to roughly −0.27. Meaningful, because this put is only 15 days out and close to the strike.
Theta (Θ)
What it is: How much value the option loses each day just from time passing, assuming the stock price stays flat. Always negative for buyers.
| Value | What it means |
|---|---|
| −0.01 to −0.05 | Slow decay — often far from expiration |
| −0.05 to −0.20 | Moderate decay |
| −0.20+ | Fast decay — usually near expiration or high IV |
Your BHP put: Theta ≈ −0.04 → Loses about four cents per day (×100 shares per contract) just from time passing. As a seller, this works for you — every day BHP stays above $80, the option you sold decays toward zero.
Vega (ν)
What it is: How much the option's price changes when IV moves 1%.
| Value | What it means |
|---|---|
| High (0.50+) | Very sensitive to volatility changes |
| Low (0.01–0.10) | Less affected by volatility shifts |
| Long options | You benefit when IV rises |
| Short options | You benefit when IV falls |
Example: If your BHP put has a Vega of 0.05 and IV jumps from 24% to 28%, the option gains roughly $0.20 in value (×100 = $20 per contract) — bad news if you're short the put.
Rho (ρ)
What it is: How much the option's price changes when interest rates move 1%. Usually the least important Greek for short-term traders.
| Value | What it means |
|---|---|
| Positive (calls) | Rising rates slightly increase call value |
| Negative (puts) | Rising rates slightly decrease put value |
| Near zero | Short-dated options barely affected |
With only 15 days to expiry, Rho has almost no practical effect on your BHP put.
Delta as a Probability Estimate
Delta is commonly used as a rough estimate of the probability an option expires in the money. It's not mathematically exact (the true theoretical probability is a related figure called N(d2)), but it's close enough that most traders use it this way in practice.
| Delta | Rough probability of expiring ITM |
|---|---|
| ±0.10 | ~10% chance |
| ±0.25 | ~25% chance |
| ±0.50 | ~50% chance (coin flip) |
| ±0.80 | ~80% chance |
Traders often pick strikes by targeting a delta — e.g. selling puts around 0.20–0.30 delta (like your BHP $80 put) to aim for roughly a 70–80% chance of keeping the full premium.
Buying vs. Selling Options — Risk Profile
| Buying (long) | Selling (short/writing) | |
|---|---|---|
| Max loss | Limited to premium paid | Can be very large (naked calls: unlimited; naked/cash-secured puts: strike price × 100) |
| Max gain | Can be large/unlimited (calls) | Limited to premium collected |
| Time decay (theta) | Works against you | Works for you |
| Why WSB accounts blow up | Rarely from buying alone | Usually from selling naked options with leverage, then getting caught by a big move |
Income Strategies
Cash secured put: Sell a put and set aside cash equal to strike × 100. Keep the premium regardless. If assigned, you buy 100 shares at the strike price — often used on stocks you're happy to own anyway, effectively lowering your cost basis by the premium received.
Covered call (stock secured call): Own 100 shares, sell a call against them. Keep the premium regardless. If assigned, you sell your shares at the strike — a way to generate income from stock you already hold.
The wheel strategy: Sell cash secured puts to acquire shares you want; once assigned, sell covered calls against those shares to generate ongoing income; if called away, go back to selling puts. A cyclical income strategy combining both.
Important nuance: If you get assigned on a cash secured put and plan to hold long-term, this isn't a realized loss — you've simply bought shares at (strike − premium), even if the market price is temporarily lower. It only becomes a real cash loss if you close the option itself at a worse price than you sold it for (e.g. via a stop loss).
Stop Loss & Take Profit on Options
These trigger a buy-back (if you're short) or a sell (if you're long) at a set option price, not the stock price.
If you sold (short) an option:
- Option price rising = bad for you (stock moving against your position)
- Set stop loss above your entry price (e.g. sold at $1.15 → stop loss at $2.15) to cap losses
- Set take profit below your entry price (e.g. take profit at $0.50) to lock in gains
- P&L formula: (entry price − exit price) × 100 per contract
If you bought (long) an option:
- Option price falling = bad for you
- Set stop loss below entry price
- Set take profit above entry price
Example: Sell BHP put at $1.15, stop loss at $2.15. If triggered, you buy back at $2.15 having only received $1.15 — that's a real cash loss of $100 per contract, not a discount. This is different from being assigned shares at expiration, which is a stock purchase, not a cash loss (assuming you're happy to hold the shares).
Open Interest
The total number of contracts of a specific strike/expiry currently open (not yet closed, exercised, or expired) — different from volume, which is how many traded today.
- New contract created (both sides opening) → open interest +1
- Existing position closed (either side) → open interest −1
- One trader takes over another's existing position → open interest unchanged, volume still rises
Why it matters: Higher open interest generally means tighter spreads and easier entry/exit. Low open interest — common on many ASX options strikes, especially further OTM ones — often means wide spreads and harder fills. It's also watched as a sentiment/positioning indicator, especially around major expiries.
Trading Options on the ASX
- ASX-listed options trade through ASX Trade, cleared via ASX Clear — you never deal directly with your counterparty
- Requires a broker and a signed Client Agreement before trading options
- ASX options generally have much lower liquidity than US options — wider spreads, fewer strikes/expiries available
- Common brokers: Interactive Brokers (lowest fees, broadest access to both ASX and international options), CMC Markets, IG Australia
Quick Reference: Your BHP Put ($80 Strike, 15 Days to Expiry)
| Greek | Approx. Value | Plain English |
|---|---|---|
| IV | ~24% | Normal volatility for BHP |
| Delta | ~−0.20 | Gains ~$20 per contract for every $1 BHP falls; roughly 20% chance of finishing ITM |
| Gamma | ~0.07 | Delta shifts noticeably as BHP moves — this put is close to the strike |
| Theta | ~−0.04 | Loses ~$4/day per contract from time alone (works in your favour as the seller) |
| Contract credit | $115 | $1.15 quote × 100 shares |
Key Concepts to Remember
- One contract = 100 shares. Always multiply the quoted price by 100 to get your actual cost (or credit received).
- Out of the money (OTM): The stock price hasn't reached your strike yet. For puts, this means the stock is above your strike price.
- In the money (ITM): Your option has intrinsic value. For puts, this means the stock is below your strike.
- Time decay accelerates as expiration approaches — the last 30 days are the fastest decay period.
- IV crush: After major news events (earnings, etc.), IV often drops sharply, taking option prices with it even if the stock moves in your favour.
- Assignment ≠ automatic loss. Being assigned shares on a cash secured put just means buying stock at (strike − premium). It's only a realized cash loss if you close the option position itself at a worse price than you opened it.
Worked Example: BHP Cash Secured Put
Stock price: $83.33 | Strike: $80 | Expiry: 15 days | Option price: $1.15 (sell to open)
| Scenario | What happens |
|---|---|
| Option price decreases | Good for you — stock staying above $80, option losing value toward zero |
| Option price increases | Bad for you — stock falling toward/below $80, higher chance of assignment |
| Stop loss at $2.15 hit | You buy back at $2.15 vs. sold at $1.15 → real loss of $100/contract |
| Held to expiry, assigned at $80 | You buy 100 shares at $80, keep the $1.15 premium → effective cost basis ≈ $78.85/share |
| Assigned but happy to hold long-term | Not a realized loss — you own shares you wanted, at a discount from the premium |