A measure of gearing which is calculated by multiplying the gearing of a call option (put option) by the call option’s (put option’s) delta. It measures the percentage change in the option price relative to that in its underlying asset. Symbolically, effective gearing is given by:
Where: Ω is effective gearing, V is the option price, S is the underlying price, is Δ delta, and S/V is simple gearing.
It is also referred to as elasticity or omega.
