What are options Greeks and why do they matter?

Options Greeks measure how an option's price changes in response to different factors. Delta measures sensitivity to the underlying price, Gamma measures the rate of change of Delta, Theta measures time decay per day, Vega measures sensitivity to implied volatility changes, and Rho measures sensitivity to interest rates. Understanding Greeks helps traders manage risk and select optimal strikes.

How do you read a Greeks heatmap?

A Greeks heatmap displays option sensitivity values across all strikes (rows) and expirations (columns) using color intensity. Darker colors indicate higher absolute values. For Delta, it shows directional exposure at each strike. For Gamma, it highlights where price sensitivity is highest (typically near ATM, near-term). For Theta, it shows which positions experience the fastest time decay.

Why does Gamma increase near expiration?

Gamma increases near expiration because the option's Delta becomes more sensitive to small price changes. An at-the-money option near expiration can rapidly shift between deep in-the-money (Delta near 1) and out-of-the-money (Delta near 0) with small underlying price moves. This creates high Gamma, which is why near-expiration options carry elevated risk for sellers and opportunity for buyers.

How does Theta decay accelerate near expiration?

Theta decay follows a non-linear curve that accelerates as expiration approaches. An at-the-money option loses roughly one-third of its time value in the final week before expiration. This acceleration occurs because the probability of the option finishing in-the-money becomes increasingly binary, rapidly eroding the uncertainty premium. Options sellers target this acceleration window, typically selling with 30-45 days to expiration.