Speed

DEFINITION of 'Speed'

The rate at which the gamma of an option or warrant will change in relation to underlying price in the underlying market. More specifically, it is the third order derivative of an options value to price. A high speed value indicates that gamma is more sensitive to moves in price of the underlying asset.




BREAKING DOWN 'Speed'

Speed is used by investors who utilize both delta-hedging and gamma-hedging option trading strategies, and provides the investor with information on the vega or delta of an option per year (the daily figure can be found by dividing the result by the number of days in the year). As the number of days left on the options contract get smaller and smaller, charm becomes more volatile and less accurate.




RELATED TERMS
  1. Color

    The rate at which the gamma of an option or warrant will change ...
  2. Gamma

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

    An options hedging strategy designed to reduce or eliminate the ...
  4. Gamma Pricing Model

    An equation for determining the fair market value of a European-style ...
  5. Gamma Neutral

    A method of managing risk in options trading by establishing ...
  6. Vega

    The measurement of an option's sensitivity to changes in the ...
Related Articles
  1. Investing Basics

    Explaining Gamma

    Gamma is a measurement of how fast the delta of an option’s price changes after a 1-point movement in the underlying security.
  2. Options & Futures

    Options Greeks: Gamma Risk and Reward

    by John Summa (Contact Author | Biography)Gamma is one of the more obscure Greeks. Delta, Vega and Theta generally get most of the attention, but Gamma has important implications for risk in ...
  3. Options & Futures

    Options Pricing: The Greeks

    Many option traders rely on the "Greeks" to evaluate option positions. The Greeks are a collection of statistical values that measure the risk involved in an options contract in relation to certain ...
  4. Options & Futures

    An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.
  5. Options & Futures

    The Forex Greeks And Strategies

    We look at the different kinds of Greeks and how they can improve your forex trading.
  6. Options & Futures

    Getting To Know The "Greeks"

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

    Options Greeks: Options and Risk Parameters

    by John Summa (Contact Author | Biography)This segment of the options Greeks tutorial will summarize the key Greeks and their roles in the determination of risk and reward in options trading. ...
  8. Forex

    Options

    Delta, gamma and volatility can be used to predict movements in underlying forex spot price.
  9. Options & Futures

    Using Options Tools To Trade Foreign-Exchange Spot

    Find out how delta, gamma, risk reversals and volatility can all help predict movements in the cash market.
  10. Term

    Measuring Options With the Greeks

    Delta, gamma, theta and vega are “the Greeks,” and they provide a way to measure the sensitivity of an option’s price.
RELATED FAQS
  1. Is there a better metric for hedging options than delta?

    Learn about delta and gamma hedging options, why gamma is a better metric to use to hedge and how gamma can be used with ... Read Answer >>
  2. How does implied volatility impact the pricing of options?

    Learn about two specific volatility types associated with options and how implied volatility can impact the pricing of options. Read Answer >>
  3. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  4. Are put options more difficult to trade than call options?

    Learn about the difficulty of trading both call and put options. Explore how put options earn profits with underlying assets ... Read Answer >>
  5. How can derivatives be used to earn income?

    Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>
  6. How are stock warrants different from stock options?

    A stock option is a contract between two people that gives the holder the right, but not the obligation, to buy or sell outstanding ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center