Remembering the Greeks.

CFA Level II
#1

Hi, Does anyone have any good ways of both understanding and remembers the Greeks and how they effect call and put options? (Any short acronyms etc).

My understanding is that the Greeks effect the call and put options in the following way.

  • Asset price --> up Delta up --> Call up --> Put down.

  • Delta up --> Gamma up --> Call up --> Put up.

  • Interest rate up --> Rho up --> Call up --> Put down (can be described through put-call parity).

  • Volatility up --> Vega up --> Call up --> Put up.

  • Exercise Price up --> Call down --> Put up

  • Time to expiration and Theta …. This one I do not understand. Anyone able to explain this one?

#2

DIVUTS DUUUUD for Call, UDUDUU for Put.

dividends, interest rate, volatility, underlying, time, strike

If the above increase

DUUUUD : value of the call goes down, up, up, up, up, down

UDUDUU for PUT.

#3

Thanks a lot for your reply - great acronym! However, when it comes to DIVUTS. How does that cover all the greeks?

D = dividend.

I = Interest rates ( Rho).

V = Volaility ( Vega).

U = Underlying

T= Time (Theta).

S = Strike. Where do you fit Delta and Gamma into DIVUTS? Do you think of them both as part of “Underlying” ?

#4

Delta = Change in Price of Option / Change in Price of Underlying.

When Underlying goes up - Call Option Goes up, Put option goes DOWN. (DUU U UD Call, UDU D UU Put).

So Delta - Call Up, Put Down?

=====================

Gamma = Change in Delta effect

So Gamma is the same as Delta - Call UP, Put Down?

#5

Makes sense - thank you.

Could you also please explain Theta? I understand that as more time is left the value of the options increases in value due to the time value. But from my understanding it is not the case that Theta gets more positive the more time that is left? What is the relationship between time and Theta?

Thanks for the help on this.