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Lambda (Leverage Ratio)

Option leverage as percentage sensitivity

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What is Lambda (Leverage Ratio)?

Lambda (Leverage Ratio) The percentage change in option price for a 1% change in the underlying price, representing the effective leverage of the option. Also called the leverage ratio or elasticity. Lambda shows how many times more the option price moves in percentage terms compared to the stock.

Complete definition

The percentage change in option price for a 1% change in the underlying price, representing the effective leverage of the option. Also called the leverage ratio or elasticity. Lambda shows how many times more the option price moves in percentage terms compared to the stock.

Example

An option with lambda of 10 will move 10% for every 1% move in the stock, providing 10x leverage.

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