# Omega

## 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."

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## 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 first-order Greeks, meaning that it relates directly to the value of an options contract, rather than to another Greek. The most common first-order 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 risk-free 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 second-order 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:

$\Omega&space;=&space;\frac{\partial&space;V}{\partial&space;S}&space;\times&space;\frac{S}{V}$

Given that the equation for delta is:

$\Delta&space;=\frac{\partial&space;V}{\partial&space;S}$

omega can be expressed in terms of delta as:

$\Omega&space;=&space;\Delta&space;\times&space;\frac{S}{V}$

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