Jump to ContentJump to Main Navigation
Show Summary Details

The European Journal of Applied Economics

2 Issues per year

Open Access
See all formats and pricing

Options, Greeks, and Risk Management

Jelena Paunović
  • Corresponding author
  • Wiener Städti sche osiguranje a.d.o. Belgrade 1 Trešnjinog cveta Street, Belgrade, Serbia
  • Email:
Published Online: 2014-05-08 | DOI: https://doi.org/10.5937/sjas11-5820


Options are financial derivatives representing a contract which gives the right to the holder, but not the obligation, to buy or sell an underlying asset at a pre-defined strike price during a certain period of time. These derivative contracts can derive their value from almost any underlying asset or even another derivative: stock-options, options on bonds, swap options (options on swaps), weather options, real options and many others. Options have existed for a long period of time but they became widely popular after Fisher Black, Myron Scholes and Robert Merton developed a theoretical pricing model in 1973 known as the Black-Scholes model. Options became a standardized product traded on the Chicago board of options Exchange (CBOT) through the clearing house guarantees. Nowadays, options are both market and OTC (over the counter) traded and are mainly used for portfolio hedging and speculation. In this paper I am going to study market risk management from the perspective of options trader, and I will show how to describe the risk characteristics of plain vanilla European stock options contracts by going through the “Greeks” which are defined as quantities that represent option’s sensitivity to risk. Finally, I will construct portfolios that will eliminate these risks.


Opcije su finansijski derivati koji predstavljaju ugovor koji daje pravo vlasniku, ali ne i obavezu, da kupi ili proda odrefienu aktivu po ugovorenoj ceni izvršenja u toku odrefienog vremenskog perioda. Derivatni ugovori mogu da dobiju vrednost od skoro svake odrefiene aktive ili cak drugih derivata: postoje opcije na akcije, opcije na obveznice, opcije na svopove, vremenske opcije, prave opcije i mnoge druge. Opcije postoje duži vremenski period, ipak postaju popularne nakon što su Fisher Black, Myron Scholes and Robert Merton razvili teoretski cenovni model poznat kao Black-Scholes model.

Opcije postaju standardizovan produkt trgovine na Cikaškoj berzi opcija (CBOT) posredstvom garancije klirinske kuce. Danas, opcijama se trguje na berzama ili van-berzanski (OTC ) i one se uglavnom koriste za portfolio hedžing i spekulacije. U ovom naucnom radu akcenat je stavljen na tržišno upravljanje rizikom posmatrano iz ugla trgovaca opcijama, kao i na opis karakteristika rizika plain vanilla Evropskih opcionih ugovora putem “Greeks” kvantitativa, koji predstavljaju opcionu osetljivost na rizik. Na kraju rada konstruisan je portfolio koji ce ukloniti navedene rizike.

Keywords: financial derivatives; OTC market; hedging; risk; speculations; Black-Scholes model; Greeks

Ključne reči: finansijski derivati; OTC tržište; hedžing; rizik; spekulacije; Black-Scholes model; Greeks


  • Augen, J. (2008). fie volatility edge in options trading: New technical strategies for investing in unstable markets. Upper Saddle River, N.J: FT Press.

  • Augen, J. (2011). fie option trader’s workbook: A problemsolving approach. Upper Saddle River, N.J: FT Press.

  • Black, F., & Scholes, M. (1972). fie valuation of option contracts and a test of market eficiency. fie Journal of Finance, 27(2), 399-417. doi:10.1111/j.1540-6261.1972. tb00969.x. [Crossref]

  • Bodie, Z., Kane, A., & Marcus, A.J. (2010a). Investments. New York, NY: McGraw-Hill Irwin.

  • Bodie, Z., Kane, A., & Marcus, A. J. (2010b). Investments and portfolio management. New York, NY: McGraw- Hill Irwin.

  • Bodie, Z., Kane, A., & Marcus, A.J. (2010c). Student solutions manual for investments. New York, NY: McGraw- Hill Irwin.

  • Carter, J.F. (2012). Mastering the trade: Proven techniques for profiting from intraday and swing trading setups. New York: McGraw Hill Professional.

  • Chen, A.D., & Sebastian, M. (2012). fie option trader’s hedge fund: A business framework for trading equity and index options. Upper Saddle River, N.J: FT Press.

  • Cohen, G. (2005). fie bible of options strategies: fie defi nitive guide for practical trading strategies. Upper Saddle River, N.J: FT Prentice Hall.

  • Cottle, M.C. (2006). Options trading: fie hidden reality: Ri$k Doctor guide to position adjustment and hedging. Chicago: RiskDoctor.

  • Fontanills, G. (2005). fie options course: High profit & low stress trading methods. Hoboken, N.J: John Wiley & Sons.

  • Hull, J.C. (2002). Options, futures, and other derivatives (5th ed.). New York, NY: Prentice Hall College Div.

  • Hull, J.C. (2011). Student solutions manual for options, futures, and other derivates (8th ed.). Upper Saddle River, N.J: Pearson Prentice Hall.

  • Jeremic, Z. (2009). Finansijska tržišta. Beograd: Univerzitet Singidunum. (in Serbian).

  • Jonson, B. (2007). Options trading 101: From theory to application. New York: Morgan James Publishing

  • Kolb, R. W. (2003). Futures, options and swaps. Malden, MA: Blackwell.

  • Ianieri, R. (2009). Options theory and trading: A step-by-step guide to control risk and generate profits. Hoboken, N.J: Wiley.

  • McDonald, R.L. (2009). Derivatives markets. New Jersey: Prentice Hall.

  • Mullaney, M. (2009). fie complete guide to option strategies: Advanced and basic strategies on stocks, ETFs, indexes, and stock indexes. Hoboken, N.J: Wiley.

  • Natenberg, S. (1994). Option volatility and pricing strategies: Advanced trading techniques for professionals. New York: McGraw-Hill.

  • Nations, S.B. (2012). Options math for traders: How to pick the best optionstrategies for your market outlook. Hoboken, N.J: Wiley.

  • Passarelli, D. (2011). fie market taker’s edge: Insider strategies from the options trading fioor. New York: McGraw- Hill.

  • Passarelli, D. (2012). Trading option Greeks: How time, volatility, and other pricing factors drive profits. Hoboken, NJ: Wiley.

  • Ross, S., Westerfield, R., & Jafie, J. (2012a). Corporate finance. New York: McGraw-Hill.

  • Ross, S., Westerfield, R., & Jafie, J. (2012b). Solutions manual for corporate finance. New York: McGraw-Hill.

  • Sincere, M. (2006). Understanding options. New York: McGraw-Hill. Vine, S. (2011). Options: Trading strategy and risk management. Hoboken, N.J: Wiley.

  • Živkovic, B., & Šoškic, D. (2007). Finansijska tržišta i institucije. Beograd: Centar za izdavacku delatnost Ekonomskog fakulteta. (in Serbian).

About the article

Received: 2014-03-31

Accepted: 2014-04-03

Published Online: 2014-05-08

Published in Print: 2014-04-01

Citation Information: Singidunum Journal of Applied Sciences, ISSN (Online) 2217-8783 , DOI: https://doi.org/10.5937/sjas11-5820. Export Citation

© by Jelena Paunović. This article is distributed under the terms of the Creative Commons Attribution Non-Commercial License, which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY-NC-ND 3.0)

Comments (0)

Please log in or register to comment.
Log in