Omega

AAA

DEFINITION of 'Omega'

A measure of the change in an option's value with respect to the percentage change in the underlying price. The omega gives option investors an idea of how the option price and the stock price that underlies it move together.

Omega is the third derivative of the option price, and the derivative of gamma.

INVESTOPEDIA EXPLAINS 'Omega'

If the omega on a Ford call option is calculated to be 1.6%, then for every 1% change in the price of Ford the price of the call option will rise by 1.6%.

Also known as "speed".

RELATED TERMS
  1. Lambda

    The ratio of the percentage change in an option contract's price ...
  2. Gamma

    The rate of change for delta with respect to the underlying asset's ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  4. Vega

    The measurement of an option's sensitivity to changes in the ...
  5. Greeks

    Dimensions of risk involved in taking a position in an option ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
Related Articles
  1. Options & Futures

    Getting To Know The "Greeks"

    Understanding price influences on options positions requires learning about delta, theta, vega and gamma.
  2. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  3. Options & Futures

    Using "The Greeks" To Understand Options

    These risk-exposure measurements help traders detect how sensitive a specific trade is to price, volatility and time decay.
  4. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  5. Options & Futures

    The Fancy Way To Diversify Your Portfolio: Precious Metal Options

    A guide with strategies on how to invest or trade in precious metals by using options.
  6. Options & Futures

    When And How To Take Profits On Options

    Here are the different criteria to ensure maximum profit taking while trading options.
  7. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  8. Options & Futures

    How To Protect A Short Position With Options

    Short selling can be a risky endeavor, but the inherent risk of a short position can be mitigated significantly through the use of options.
  9. Options & Futures

    Sensitivity Analysis For Black-Scholes Pricing Model

    Trading options requires complex calculations, based on multiple parameters. Which factors impact option prices the most?
  10. Options & Futures

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center