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Determining Greek position limits
- Thread starter TSLexi
- Start date
I'm prepared to risk $15,000 total of Reg T margin (I'm not yet eligible for portfolio margin as I have <$100K and only 1 year of options trading experience).
My maximum loss I can withstand is 20% of a position that is 25% of my trading capital.
Then that's what you should use for your risk limits rather than the greeks.
How about incorporating a theta/gamma ratio? You could look at it as a Yield to Risk ratio.
What would you consider a high theta/gamma ratio, indicating I should sell said option, and what would you consider a low theta/gamma ratio, indicating I should buy said option?
What would you consider a high theta/gamma ratio, indicating I should sell said option, and what would you consider a low theta/gamma ratio, indicating I should buy said option?
look at the current gamma/theta ratio over a range of strikes, and compare that to historical gamma/theta ratios. if it is high (low) relative to historical, the options are cheap (rich).