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The Greeks and Implied Volatility

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment of Best Practices explains what the Greeks tell us when implied volatility (IV) is high.

We tend to pay attention to the following Greeks: delta, gamma, theta, and vega. Delta represents directional risk, gamma represents the change in delta, theta represents the rate of premium decay, and vega represents volatility risk. In a high IV environment, there is less volatile risk exposure and greater premium for short option positions.

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