Omega is a measure of the change in an option’s value with respect to the percentage change in the underlying price. It gives the option investors an idea of how the option price and the underlying stock price move together.
Omega is the third derivative of the option price, and the derivative of gamma.
If the omega on a XYZ call option is calculated to be 1.6%, then for every 1% change in XYZ price, price of the call option will rise by 1.6%.
It is also known as “speed”.
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