Definition
Greeks are quantitative metrics used in options pricing models to express the sensitivity of an option’s value to various underlying risk factors. They decompose an option’s price into components driven by movements in the underlying asset, the passage of time, changes in implied volatility, and shifts in interest rates. In crypto markets, Greeks serve the same role as in traditional derivatives, providing a structured way to understand and manage the complex risk profile of instruments like a call option or put option.
Each Greek corresponds to a specific dimension of risk, such as directional exposure, convexity, time decay, or volatility dependence. Together, they form a standardized language for describing how an option’s theoretical value should react to small changes in market conditions. This makes Greeks a core concept in options risk management and valuation across both centralized and on-chain derivatives venues.
Context and Usage
In practice, Greeks are derived from an options pricing model that incorporates factors such as the underlying asset price, strike price, time to expiry, interest rates, and implied volatility. They are typically expressed as numerical values that can be aggregated across positions to describe the overall risk profile of a portfolio. For example, a portfolio’s combined Greeks summarize its sensitivity to underlying price moves, volatility shifts, and the passage of time, regardless of the mix of call option and put option contracts it contains.
Because Greeks explicitly reference volatility, they are closely linked to both implied volatility and realized volatility as market conditions evolve. In crypto derivatives markets, where volatility can be extreme, Greeks help formalize how option prices embed expectations about future volatility and how those expectations affect risk. As a concept, the Greeks framework is model-dependent but widely adopted, making it a foundational tool for advanced options analysis and risk decomposition.