DEFINITION of 'Omega'
In finance, omega represents the percentage change in an option's value with respect to the percentage change in the underlying price. Omega (Ω) measures the leverage of an options position.
Ω = percent change in V ÷ percent change in S
where:
V = price of the option
S = underlying price
Omega is also known as "lambda" (λ) and "elasticity."
BREAKING DOWN 'Omega'
For example, if Ford Motor Co (F) shares increase 7% in a given period and a Ford call option increases 3% in that same period, the omega of the call option is 3 ÷ 7, or 0.43. This would imply that for every 1% Ford stock moves, the call option will move 0.43%.
Options Greeks
Omega is one of the Greeks, a set of metrics that give a sense of an options contract's risk and reward with respect to different variables. While there are many Greeks, omega is one of a limited number of firstorder Greeks, meaning that it relates directly to the value of an options contract, rather than to another Greek. The most common firstorder Greeks are:
Delta (Δ) – change in option value with respect to change in underlying price
Theta (Θ) – change in option value with respect to change in time to expiration
Rho (ρ) – change in option value with respect to change in riskfree interest rate
Omega (Ω) or lambda (λ) – percent change in option price with respect to percent change in underlying price
Vega (v) – change in option value with respect to change in underlying volatility (vega is not the name of a Greek letter)
Another common Greek is a secondorder variable, gamma (Γ): the derivative of delta, it measures the change in delta with respect to the change in the underlying price.
Relationship to Delta
The equation for omega can also be expressed:
Given that the equation for delta is:
omega can be expressed in terms of delta as:

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