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do most option buyers do the greeks calculations etc..
- Thread starter noob_trad3r
- Start date
Quote from bwolinsky:
I only really care about delta to predict what I expect the market move to be.
The delta will do the job of predicting how much the option price will change when the stock moves - BUT NEVER in an environment when implied volatility changes more than compensate for the effect of delta.
Many times, in sharply falling markets, calls do not decline in price - due to the effect of IV.
Many times, in rising markets, calls fail to move higher in price, due to IV getting crushed.
Mark
Quote from noob_trad3r:
Going through my learning process one of the things I noticed overall is how expensive options seem lately.
ie: lets say an call option for stock X, strike price 45 sells for 2.50 a share.
stock is trading at 40 today, and the option expires in 30 days.
That means the option has only time value of 2.50 for 30 days.
but even if the stock was selling at 46 dollars a share before expiration the time value might only be like 5 cents and the intrinsic value 1 dollar. from my understanding. so for the buyer it is a losing trade.
I have notice this, it seems options are super expensive.
like SPY march put with a strike price of 76 is selling for 1.89 per share.
so SPY would have to plummet past 76 dollars within 38 days.
Is it just me or does 1.89 sounds like a lot of money to pay for an march SPY put? It is over 7 dollars out.
Try to understand this because it will help you really understand the magniture of what a worse case can be under normal volty conditions.
If realized vol will be the same as currently implied (42.??), and if the current price of SPY ($82.76) is the top price during the next 38 days, we can say this with ABSOLUTE certainty: SPY will reach a price equal to or LESS than $58.75. That is $24 down (with certainty under the above two conditions which is not unrealistic).
So what people see as dramatic moves are normal moves.
There is chance that what I wrote would be a shock to people. You need to understand why it is fundamental truth of how markets work. If you are shocked or your mind cannot accept it, all it says that they you have not fully put your mind around the market.
Oh no!!!! You are back! And just as ignorant as ever.Quote from riskfreetrading:
if the current price of SPY ($82.76) is the top price during the next 38 days, we can say this with ABSOLUTE certainty....
I hope no one takes what you write seriously.
One thing I can say with absolute certainty is that you are as dumb as a mud stump.
No, almost certainly not.Quote from kinggyppo:
does the poster understand delta?
Beau W. graduated from a community college in Tennessee. Unfortunately there was no room for courses in options theory in the ag dominated curriculum. All he knows about options he learned from RiskFreeTrading.
There is a slight chance that he means that the relationship among relative deltas of options with the same K/S is a crude measure of relative volatility, but I doubt it.
Quote from Emilio_Lizardo:
No, almost certainly not.
Beau W. graduated from a community college in Tennessee. Unfortunately there was no room for courses in options theory in the ag dominated curriculum. All he knows about options he learned from RiskFreeTrading.
There is a slight chance that he means that the relationship among relative deltas of options with the same K/S is a crude measure of relative volatility, but I doubt it. [/QUOT
If you are going to trade directionally and don't understand delta
then you should send the money to charity. For the op, consider
that you bought 2 puts at the money each having a -.50 delta
this would be the rough equivalent of being short 100 shares or -100 deltas. Delta is simply the change in the options price relative to the underlying, so that in my example if spy went from
87 to 86 you would make 100 dollars.This is a rough example and does not consider other issues such as vega, vol, etc.
Quote from riskfreetrading:
...we can say this with ABSOLUTE certainty: SPY will reach a price equal to or LESS than $58.75.
Not true.
the volatility may be realized to the UPSIDE. It dos not have to be to the downside.
Also, the 'realized volatility' does not have to all occur in one direction. The underlying can move +5, then -10, then +6 etc. It can go nowhere and still have a realized volatility much higher than 42.
Mark
Quote from dagnyt:
"Not true.
the volatility may be realized to the UPSIDE. It dos not have to be to the downside.
Also, the 'realized volatility' does not have to all occur in one direction. The underlying can move +5, then -10, then +6 etc. It can go nowhere and still have a realized volatility much higher than 42."
Mark
If it is realized all in one side, could you give the numbers?
If it is realized to the down side what are the numbers?
PS: next time re-read what I write at least twice, because I wrote the conditions under which the result is valid.
Quote from riskfreetrading:
Try to understand this because it will help you really understand the magniture of what a worse case can be under normal volty conditions.
If realized vol will be the same as currently implied (42.??), and if the current price of SPY ($82.76) is the top price during the next 38 days, we can say this with ABSOLUTE certainty: SPY will reach a price equal to or LESS than $58.75. That is $24 down (with certainty under the above two conditions which is not unrealistic).
So what people see as dramatic moves are normal moves.
There is chance that what I wrote would be a shock to people. You need to understand why it is fundamental truth of how markets work. If you are shocked or your mind cannot accept it, all it says that they you have not fully put your mind around the market.
If Pythagoras were to say " If we have a right angle triangle , then we have A^2+B^2 = C^2)."
Some people would respond that it is not true and give as their reason that a triangle with no right angle does not possess the above property.
I hope the triangle example will shed some light in the mind of people who makes similar mistakes.
I would like somone to challenge the validity of the result I stated in the post I am quoting in this post.