Extremely dumb question about the greeks

[der_kommissar]

This is where a many traders have lost money and don't understand why. When I was trading AAPL as a MM, a customer bought 100 OTM calls just before earnings, where earnings were thursday night before expiration. After earning, there was one trading left. The stock went up around 10%, yet the calls were down a 1/8 (Yes, long time ago). The customer sent his broker into the crowd to complain that he was right, AAPL went up, but he lost money. He was long deltas, but also long a lot of vega with a lot of theta decay. The stock did not move enough to for the current options prices and he ignored the risk of the other greeks.

Bob

Yes, one has to be in one of these positions at some time to truly appreciate how much of an impact IV has on an options position...Realistically, one can get direction completely wrong, but if they buy low IV they could still come out a winner (I'm sure it happens a bit more in individual equities), but I saw it firsthand last 8/24 and once against post-Brexit...

 

[oldnemesis]

I have traded options for 10 years and have NEVER used 'the Greeks' for anything. I have switches on my display to turn on the greeks but have never been tempted to flip them.

I am interested in what is happening to the underlying and its effect on option prices.

I sometimes THINK about theta but there is nothing lost by simply saying "time to expiration". The term 'theta' actually adds nothing to understanding the position, just as saying volatility instead of Vega is just as good (actually to me it's better because the term 'volatility' is more descriptive...and Vega isn't even a Greek letter...its actually a star in the constellation Lyra.)

So to me 'the Greeks' means college fraternities...which are also pretty useless.