Color (which is not represented by a greek letter) is one of the options greeks which are collectively used to determine how closely an options or warrants contract will track its underlying market. Specifically, color is the rate at which the gamma (G) of an options or warrants contract will change over the passage of time (i.e. the gamma time decay). Color is a third order derivative, and is useful when a trader is making a gamma hedged trade.

Calculation

Color is the third derivative of the value (V) of an options or warrants contract, twice with respect to the price of the underlying market, and once with respect to the passage of time. Color is calculated as shown in the above calculation image.

Use In Trading

Color is the rate that the gamma of an options or warrants contract will change over the passage of one year, but is sometimes given as the color for a shorter time frame (e.g. one month, one week, or one day). Color is useful for traders that want to make a gamma hedged trade. In other words, traders that want to make an options or warrants trade where the gamma does not change as the options or warrants contract nears its expiration date, will need to use color.