DEFINITION of 'Lambda'
The ratio of the percentage change in an option contract's price to the percentage change in the option's underlying price. Lambda is one of the Greeks – a collection of risk measures or risk sensitivities that are frequently used in options and derivatives analysis. Each Greek measures the sensitivity of a value in relation to a small change in an underlying parameter. Lambda measures the change in option premiums for a percentage point change in its implied volatility. When the lambda value is high, the price of an option will be more sensitive to small changes in volatility. Conversely, when lambda is low, changes in volatility will have less impact on the option's value.
BREAKING DOWN 'Lambda'
Lambda is one of many Greeks used in determining and managing risk in options and derivatives trading and investing. The most common Greeks used are: Delta, which measures the rate of change of option value in response to changes in the price of the underlying instrument; Vega, which measures sensitivity to volatility; Theta, which measures the sensitivity of the value against the passage of time; Rho, which measures sensitivity to the interest rate and Gamma, which measures the rate of change in the Delta with respect to changes in the price of the underlying instrument.

Implied Volatility  IV
The estimated volatility of a security's price. 
Derivative
A security with a price that is dependent upon or derived from ... 
Volatility
1. A statistical measure of the dispersion of returns for a given ... 
Gamma
The rate of change for delta with respect to the underlying asset's ... 
Vega
The measurement of an option's sensitivity to changes in the ... 
Greeks
Dimensions of risk involved in taking a position in an option ...

Options & Futures
Implied Volatility: Buy Low And Sell High
This value is an essential ingredient in the option pricing recipe. 
Options & Futures
Getting To Know The "Greeks"
Understanding price influences on options positions requires learning about delta, theta, vega and gamma. 
Options & Futures
Using "The Greeks" To Understand Options
These riskexposure measurements help traders detect how sensitive a specific trade is to price, volatility and time decay. 
Options & Futures
Understanding Option Pricing
Take advantage of stock movements by getting to know these derivatives. 
Options & Futures
The ABCs Of Option Volatility
The mystery of options pricing can often be explained by a look at implied volatility (IV). 
Mutual Funds & ETFs
ETF Analysis: PowerShares DB Commodity Tracking
Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts. 
Options & Futures
Use Options to Hedge Against Iron Ore Downslide
Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders. 
Home & Auto
Understanding RenttoOwn Contracts
They can work for you or against you. Here's how to negotiate a fair one. 
Home & Auto
Avoiding the 5 Most Common RenttoOwn Mistakes
Pitfalls that a prospective tenantbuyer could encounter on the road to purchase – and how not to stumble into them. 
Home & Auto
Renting vs. Owning: Which is Better for You?
Despite the conventional wisdom, renting might make more financial sense than you think.

How do futures contracts roll over?
Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >> 
How does a forward contract differ from a call option?
Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >> 
Why do companies enter into futures contracts?
Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >> 
What does a futures contract cost?
The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >> 
What are the main risks associated with trading derivatives?
The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >> 
How can an investor profit from a fall in the utilities sector?
The utilities sector exhibits a high degree of stability compared to the broader market. This makes it bestsuited for buyandhold ... Read Full Answer >>