A change in the sensitivity of an option (or generally a derivative) with the passage of time, holding everything else constant (e.g., volatility). More specifically, bleed denotes the changes of greeks with time. The bleed captures the change in the delta and gamma of an option as the time passes by (over the course of the option’s life). Empirical evidence indicates that the delta and gamma of an option vary over time. The bleed is measured by re-pricing the option one day shorter.
The gamma bleed can be calculated taking the gamma of today and subtracting the gamma of tomorrow by re-pricing the option one day shorter:
Gamma bleed = gamma (at time n) – gamma (at time n+1)
In the same token, the delta bleed is:
Delta bleed = delta (at time n) – delta (at time n+1)
Bleed (literally, a slow loss of blood) is a metaphor for time decay.
