The risks unique to options
Options add risks that do not exist in cash equity, and each Greek is really a source of risk before it is a source of edge. These pages explain option risk through the risk-management lens — how delta, gamma, theta and vega expose a position, and the discontinuous dangers of assignment, pin, gap, overnight and expiry risk that punish oversized or unhedged positions, especially on Indian weekly expiries. The mechanics of the Greeks themselves live on GreeksGyan; here the focus is on containing what they can cost you.
Options Risk: Options risk is the set of exposures unique to option positions: directional risk (delta) and how fast it changes (gamma), time-decay risk (theta), volatility risk (vega) and interest-rate risk (rho), together with the discontinuous risks of early assignment, pin risk at expiry, gap and overnight risk, and expiry risk. Because options are leveraged and their risks are non-linear, a small adverse move — especially a volatility spike or an expiry-day gap on NSE weeklies — can cause losses far larger than the premium suggests, so option risk is controlled with position limits, defined-risk structures and hedging rather than stops alone.
Delta Risk
Options riskDelta risk is the directional exposure of an options position, the rupee amount it gains or loses for a one-point move in the underlying, and control…
Gamma Risk
Options riskGamma risk is the exposure to changes in an option position's delta as the underlying moves, and it matters most because short-gamma positions see th…
Theta Risk
Options riskTheta risk is the exposure of an options position to the passage of time, the daily erosion of extrinsic value that steadily drains a buyer's premium…
Vega Risk
Options riskVega risk is the exposure of an options position to changes in implied volatility, the rupee gain or loss for a one-point change in implied vol, and …
Rho Risk
Options riskRho risk is an options position's sensitivity to changes in the risk-free interest rate, usually the smallest of the Greeks for short-dated Indian F&…
Assignment Risk
Options riskAssignment risk is the exposure of a short option to being exercised by its holder, obliging the seller to deliver or take the underlying, and in Ind…
Pin Risk
Options riskPin risk is the uncertainty a short option faces when the underlying settles very close to its strike at expiry, leaving it ambiguous whether the opt…
Gap Risk
Options riskGap risk is the danger that a market opens at a price far from its previous close, jumping past any stop-loss so that the realised loss is set by the…
Overnight Risk
Options riskOvernight risk is the exposure a trader carries by holding positions while the market is closed, unable to react to news, gaps, global moves and marg…
Expiry Risk
Options riskExpiry risk is the concentration of option risk that occurs as expiry approaches, when gamma peaks, time decay is harshest, pin and assignment effect…