Options trading is a battle few people survive. If you don’t understand the risks (and there are several), you’ll run into trouble — fast. Successful traders determine the risks of every trade with precision. They understand not only the markets’ intricacies, but also the best way to profit from a forecast with the least amount of risk.

This may sound obvious, but understanding option risk is more difficult than it seems. Options are complex instruments that are influenced by several variables. When measuring option risk and reward, some traders focus on the options’ potential values at expiration. Although this is an important consideration, prior to expiration three main factors govern the price of an option: the direction of the underlying instrument, the time to expiration, and volatility.

It is essential to understand how each of these variables can affect an option’s price. And the best way to measure these risks is to study the major option "Greeks" — delta, gamma, theta, and vega.