An option position does not move linearly with the underlying. Delta, Gamma, Theta, and Vega are the terms of a Taylor expansion applied to the option pricing function.
The Taylor expansion of option price C(S, T) :
ΔC ≈ Delta·ΔS + ½Gamma·ΔS² + Theta·Δt
This explains why the same underlying move does not create the same option price move every time.
Gamma: why the same move gives different results (curvature).
Theta: why time erodes even when direction is correct.
Vega: volatility sensitivity.
An execution system monitoring only through Delta is running a first-order model.
Options Greeks, Taylor series, Risk math, Derivatives
Mirrored from AION Analytics (India) dashboard. Read original
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