Explain the Greeks.
What the interviewer is testing
Option risk management, core for trading interviews.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
They measure an option's sensitivity to each input. Delta: the change in price for a €1 move in the underlying (0 to 1 for calls). Gamma: how fast delta changes — highest for at-the-money options near expiry. Vega: the change for a 1-point move in volatility. Theta: the value lost per day as time passes. Rho: sensitivity to interest rates.
The full answer
| Greek | Measures | Typical behaviour |
|---|---|---|
| Delta | Change in price per move in the underlying | Calls 0 to 1, puts −1 to 0; about 0.5 at the money |
| Gamma | Change in delta per move in the underlying | Highest at the money and rising near expiry; low deep in or out of the money |
| Vega | Change in price per point of volatility | Highest at the money and for long-dated options |
| Theta | Change in price per day | Negative for long options; accelerates near expiry for at-the-money options |
| Rho | Change in price per point of interest rate | Positive for calls, negative for puts; small for short-dated options |
How traders use them
- Delta hedging: hold −delta shares per option to be neutral to small moves.
- Long gamma (owning options): profits from large moves, pays theta every day.
- Short gamma (selling options): collects theta, loses on big moves.
Mistakes to avoid
Saying gamma is highest for deep in- or out-of-the-money options — it's the opposite.
Follow-ups they may ask
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