Home › Academy › Option pricing and the Greeks
Professional · Lesson 5 of 6Theta, vega and rho
Theta is the change in option value as one day passes, holding everything else fixed. It is usually negative for buyers and accelerates near expiry for ATM options.
Vega is the change in value for a 1 percentage point change in implied volatility. Long options have positive vega; sellers are short vega. Vega is larger for longer-dated options.
Rho is sensitivity to interest rates: call values rise slightly when rates rise, put values fall. It matters most for long-dated options (LEAPS). Traders manage a book by its total Greeks: for example, long gamma and long vega but paying theta.
Key takeaways
- Theta = time decay (buyers pay it).
- Vega = volatility sensitivity, larger for longer expiries.
- Rho matters mostly for long-dated options.
Check your understanding
1. A position is long gamma and long vega. It is usually...
- Earning theta
- Paying theta
- Theta neutral by law
- Rho negative
Show the answer
Paying theta. Long options pay time decay in exchange for gamma and vega.
2. Which options have the largest vega?
- Very short-dated
- Long-dated
- Expired
- Deep ITM only
Show the answer
Long-dated. More time means volatility affects value more.
Go deeper
- Wikipedia: Greeks (finance)
- YouTube videos: theta vega rho option greeks
- Investopedia: vega options
- Wikipedia: LEAPS (finance)
Practise this in Vestora
Look up real shares, test ideas with paper trading, and track your progress through the course.
Open the app freeGeneral education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.