The option Greeks are financial metrics that are used by traders to evaluate the risk of our option contracts as well as how option price changes as it related to the price of the underlying security. This article will review the option Greeks with an emphasis on the 3 most important to our option trades.
What are Option Greeks?
- Mathematical means of estimating the pricing and risk of our option contracts
- The 5 option Greeks
- –Delta
- –Gamma- 2nd generation Delta, the “Delta” of “Deltas”
- –Theta
- –Vega
- –Rho- not a major Greek
Delta Defined & Applications
- Delta is the amount an option price will change for every $1.00 change in share price
- –How to use the 20%/10% exit strategy guidelines
- –Which strikes to use stock surrogates
- Delta is the equivalent number of shares represented by the options position
- –More for high-wealth portfolio managers
- –Delta-neutral portfolios
- Delta is the percentage likelihood that, upon expiration, the option will expire in-the-money or with intrinsic value (subject to exercise)
- Portfolio overwriting- avoid exercise of low-cost-basis shares
- Deep OTM puts- avoid having shares “put” to us
- Deep ITM calls- avoid stock price dropping below breakeven price point
Theta Defined & Applications
- Estimate of how much the theoretical value of an option will decline with the passage of 1 calendar day
- Assists us in determining when to enter our trades
- Assist us in the most appropriate exit strategies to use
- 20%/10% BTC-GTC limit orders
- “Hitting a Double” versus “rolling-down”
Graphic representation of Theta for near-the-money strikes
There are more opportunities to generate additional time-value profit earlier in the contract before Theta depreciates time-value opportunities.
Vega Defined & Applications
- Amount an option price changes with a 1% change in implied volatility of the underlying security
- Extremely important to integrate implied volatility into our option trading decisions
- IV can also be used to determine an expected trading range for a specific contract
- Greater implied volatility = larger premiums = greater risk to the downside
- IV is inherent in our option time-value components
- Our initial time-value return goal range can be used to measure the risk of our trades
- 2% – 4%/month, for me
- 1/4th that amount for weekly expirations
Comparing high-IV (SHOP) with low IV (EBAY) stocks: Option chains on 2/4/2025
SHOP IV is much greater than that of EBAY. Let’s insert the corresponding bid prices into our Trade Management Calculator (TMC).
SHOP vs. EBAY initial time-value returns using our Trade Management Calculator (TMC)
- SHOP 18-day return is 7.01%, 142.20% annualized
- EBAY 18-day return is 1.59%, 32.29% annualized
- SHOP is much more tempting, but does the additional risk to the downside align with our personal risk-tolerance? Maybe, yes; maybe, no. This will vary from investor-to-investor
Discussion
- The most important Greeks for covered calls and cash-secured puts are Delta, Theta & Vega
- Premium returns should be measured against the inherent risk in our trades
- The Greeks assist us in entering and managing our trades
Expected Price Movement Calculator
The Expected Price Movement Calculator is designed to generate an approximate projected trading range for the underlying security, specific for selected contract expiration date. The at-the-money implied volatility (IV) of the stock or ETF (exchange-traded fund) is used to achieve this valuable information.
Inherent in the spreadsheet is a conversion formula that recalibrates the annualized IV stat into one specific for the contract being traded. Easily accessed option-chain data is entered into the white cells at the top of the spreadsheet and calculations will appear in the yellow cells below.
Click here for a video and more information.
Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to publish several of these testimonials in our blog articles. We will never use a last name unless given permission:
To Alan:
Who is the Best Teacher of Covered Calls?
There is no close 2nd in this area. You are the best of the best. I’m on YouTube a lot and I see and listen to a lot of content, and I can tell you there isn’t another options teacher in your class. I can tell you that one of the key assets you’ve developed is a consistent way to communicate how option strategies work. And at the core of what you teach is the Trade Management Calculator, which enables us to know if we’re making money or not. Plus, you have codified Exit Strategies, so we have tools that help us reduce risk and loss. And a final huge plus is the weekly stock watch list, and that gives us a list of where to start each week and month. I use those materials every day.
John
Upcoming events
1. Cyber Trading Expo
Wednesday July 23, 2025
3 PM ET – 4 PM ET
Info & registration link to follow.
2. BCI Educational Series Webinar # 8: New Credit Spread Calculator
Thursday September 18,2025
8 PM ET – 9:30 PM ET
Over the past 2 years, BCI has been developing and beta-testing a 1-of-a-kind spreadsheet for entering and adjusting our credit spread trades. Like our Trade Management Calculator (TMC), our goal was to make it the industry standard. Only you can decide if we accomplished our mission.
Alan & Barry will introduce this product, review all the tabs inherent in the spreadsheet and demonstrate how to use it. A 1-time early order discount will also be offered.
For those who trade, or are interested in learning how to trade, credit spreads, this is a must-see webinar.
More details and registration information to follow.
3. Orlando Money Show
Orlando Resort @ ChampionsGate
October 16 – 18, 2025
- Opening ceremony keynote address
- 2-hours Master’s Class
- 45-minute workshop class
Details and registration link to follow.
Alan,
When you take a “defensive” position with your cash secured put trades, how do you determine which strike to select?
I know it’s otm but how far?
Thank you.
Bruce (premium member)
Bruce,
There are several methods we can implement to determine strike selection. Two involve quantifying the risk we are willing to incur in our trades using Delta or implied volatility or both.
Another approach is to identify our pre-stated initial time-value return goal range. Let’s assume it’s 2% – 4%/month. Since you are specifying a defensive trade, we would focus in on the 2% figure and find the deep OTM put strike that comers closest to this goal.
Alan
Premium Members,
This week’s Weekly Stock Screen and Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 07/11/25.
Be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
https://www.youtube.com/user/BlueCollarInvestor
Barry and The Blue Collar Investor Team
Premium members,
The new Blue Chip (Dow 30) Report for the August 2025 contracts has been uploaded to your member site.
Look on the right side of the site (“Resources/Downloads”) and scroll down to “B”.
On Wednesday evening, we will publish the new weekly ETF Report.
Keep in mind that we are in earnings season, which may impact the status of these securities. of course, ETFs are not affected by ERs as much as individual stocks.
Alan & the BCI team
Alan can you give me some direction on Nvda that has shot way up this month.
I purchased Nvda at 143.74 and sold the 7/18 150 strike. with a premium of 2.51
today it’s at $170.00.
Do I let it expire and collect about $875 or try to roll out and up on expiration Friday. Which is about 20.25 per share to BTC today
Can you help with the plus minuses of these options and what the thought process is. I’ve put theses in the calculators but am still confused about the + and – ‘s
Got a similar situation with PLTR just not has drastic
Thanks for any help you can give.
Ivan
Ivan,
Let me start with this … you have a wildly successful trade. Congratulations!
The next question is to roll or not to roll.
If you do nothing and “allow” exercise, your return will be 6.11%, not bad at all.
The time-value cost-to-close is miniscule and will be even less on Friday, so I don’t have a problem rolling if you want NVDA to be part of the next cycle’s portfolio.
Use the TMC spreadsheet to run the numbers. I just did for you before this response. If you rolled out-and-up today to the 8/15/2025 $175.00 call strike your total net return will be 9.58%. It will be slightly better on Friday.
Bottom line: If you decide to include NVDA in the next expiration cycle, rolling-out-and-up makes sense.
If not, you’ve still executed a wonderful trade.
I wish you many more.
Alan
Alan,
Another question. For the CSP with 5 DTE, what are exit criteria? I’m assuming it’s the 10% option drop guideline still applies? What about the 3% stock drop, does that exit criteria still apply?
regards,
Vik
Vik,
Yes, both are in play as exit strategy guidelines.
For the 10% guideline, check to see if there is a rolling-up opportunity.
Alan
Premium members:
This week’s 4-page report of top-performing ETFs, along with our sample trade of the week, has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.
We have also included a sample trade taken from one of our BCI watchlists.
Premium member video link:
https://youtu.be/EXMO-KwZuJs
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
Alan and the BCI team