Delta, gamma, vega and theta are how you measure and hedge the risk in an LME option. Here's what each one means for base metals — and how the volatility smile changes them.
See live Greeks in the free pricer →Delta is how much the option's value moves for a one-unit move in the underlying forward. It doubles as a hedge ratio: a 25-delta call behaves, locally, like being long a quarter of a lot of the metal. On a desk, delta is what you neutralise first — buy or sell the corresponding future so the book is flat to small price moves.
Gamma is the rate of change of delta. High gamma — concentrated around the strike and near expiry — means your delta hedge drifts quickly as the forward moves, so you re-hedge more often. It's the curvature of the position, and it's where short-dated at-the-money options earn (or cost) you the most.
Vega is sensitivity to implied volatility. Base-metal vol is not a single number: downside puts and upside calls trade over the at-the-money for structural reasons — supply shocks, short squeezes, backwardation flips. So the vega of an out-of-the-money strike depends on which point of the smile it sits on, not just the ATM level.
Theta is time decay — how much value the option loses as a day passes, all else equal. It's the mirror of gamma: the convexity you're paying for bleeds out through theta, fastest for near-dated at-the-money options.
If you price every strike off one flat volatility, every out-of-the-money quote is wrong and your risk report understates the real tail exposure. A contributed-wing smile prices strikes by delta against the actual surface, so the Greeks on your wings reflect how base metals really trade. This matters most for collars, risk reversals and anything with a leg away from the money.
LME options are priced with Black-76 on the forward, and they carry the exchange's own calendar — options expire on the first Wednesday of the contract month and exercise into the third-Wednesday prompt future. Getting the expiry, prompt date and discounting right is as much a part of a correct Greek as the model itself. See our Black-76 pricing guide for the detail.
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