Greeks

"Gamma Scalping Delta Neutral Long Vega Short Theta Rho anticipating Broken Wing Condor Calendar Spreads is the road to riches."

I like this strategy (I think) tell me more or at least where I can subscribe :)
 
stoic said:
I posted here on ET a detailed daily analysis and used the Greeks as calculated from an online source (CBOE so as not to be accused of using bad formulas) over a few months time. Only rarely did the theoretical values ever come close to the real world. My post provoked a fare amount of flack then also. (I tried to find it, but it must have dropped off by now)
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Is this what you're referring to?
http://www.elitetrader.com/vb/showthread.php?t=208992

Seems like you got some legitimate input in 2010 on why that is - looks like the issue is discrepancies in attribution. Anything worth revisiting?
 
stoic said:
My advice would be to forget the Greeks entirely. There worthless.

I'm sure this will fly in the face of at least some here. But I'm still waiting for anyone to prove otherwise.
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Proof is not something us Elite Traders want to hear!
 
You'd better pay attention to the Greeks!

Theta literally tells if time is making or costing you money. Dynamic delta hedging helps you make the profits needed to offset the money theta is costing you, or helps you not lose the profits theta is making you.

And if you want to sell options, you need to make sure gamma and delta are as close to zero as possible, because delta hedging a position with short gamma leads to a loss snowball.

And if IV is extremely volatile, you need to be vega neutral.

All options trading is an exercise in financial risk management. And all stock trading based on technical analysis is an exercise in clairvoyance.
 
stoic said:
First, let me give you some advice since it would seem your very young and/or naive.

When in a debate and your opponent starts calling you names.... You've won.

Second, some history.

I started trading the markets in 1975. I became a broker in 1981 and got my series 4 (Registered Options Principal) license in 1982. Series 15 in 1985. Over the next 17 years I dealt with clients and supervised the option trading activity at several firms for hundreds of brokers. Worked on the trading desks and in compliance. By 1998, I worked at the largest online broker working with high net worth, active trader clients mostly in options and got my Series 9 & 10. In 2006 I move into the back office IT financial services area writing functional requirements for both the front & back end systems for option trading & margin optimization. Like most aficionados of options, I also studied the B&S model, the Greeks, The Binomial Option Price Model, and read all the books. I know at least enough to write the formulas into a spreadsheet w/VBA and computer code in two languages. In over 3 decades in the business I've seen those who bought the latest books or the latest software, attended the option seminars and paid out big bucks for Wade Cook, Star Traders, Optionetics, Online Trading Academy, paid for the latest Hot Newsletter or subscribed to this or that options guru pre-market squawk. In all that time and all those trades and traders not once, NOT ONCE did I ever see anyone make profitable trades based on their complicated math or strategy suggested by the Greeks. My own studies over considerable time showed little if any value for the effort. So why is it out there...? There's certainly lots of money to be made by promoting to the great unwashed masses the idea that the Gamma Scalping Delta Neutral Long Vega Short Theta Rho anticipating Broken Wing Condor Calendar Spreads is the road to riches.

I posted here on ET a detailed daily analysis and used the Greeks as calculated from an online source (CBOE so as not to be accused of using bad formulas) over a few months time. Only rarely did the theoretical values ever come close to the real world. My post provoked a fare amount of flack then also. (I tried to find it, but it must have dropped off by now) So I solicited from those touting the merits of the theoretical models to "show me". And just as in the past decades, my challenge yielded no response. So I must come to the same conclusion, those who advocate the virtues of the theoretical models fall into two categories. Those trying to sell you something, and those that are just option trader wannabes who get some artificial kick from spewing out intellectual sounding terms to the great cyber unknowns in hopes of boosting their ego.

So, for anyone out there.....If you think I'm completely wrong..... I don't know what I'm talking about... or I've failed to learn anything about options after decades......then "Show Me"
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I take back my remarks about calling you a "troll and an idiot."

I think you (and many others misinterpret the greeks). They aren't meant to be gospel. And they won't make you profitable. They are more like the speedometer on a car. They can tell you how fast you are going but won't get you there by themselves.

That being said, they are models and models sometimes don't fit the real world. I don't know what happened to the specific option you highlighted in the paper that Soon2BeGreat mentioned. It seems that there was bad CBOE data because the stock moved but the delta was zero and the implied vol didn't move. That can't happen as delta is a function of moneyness and implied vol.

Most of the times the models are pretty good. Take a sample of options on a Monday close. Compare their prices on a Tuesday and you can breakout the pnl by change in delta, gamma, vega and theta. The wild card is vega. It's the plug. If the stock doesn't move and the option does, then vega is the reason.

Some people try to use the greeks and fancy options lingo to sound smart. Others use it to sell a dream to new traders. Most experienced options traders (and from what you mentioned about your background - most of your clients wouldn't qualify) use the greeks to describe their risks. It tells them what they are rooting for, but it won't tell them what they should be rooting for. Experienced options traders know this. Newbies need to learn it.

But like all models, there are limitations. Experienced options traders know where those limitations are (like when your "true" delta will differ from the model delta) and can profit from them.

It's not reasonable to say the greeks are useless. It's like saying "beta is useless in constructing a stock portfolio" or "the forward yield curve is useless" when determining whether to get a fixed rate or floating rate mortgage.
 
newwurldmn said:
I think you (and many others misinterpret the greeks). They aren't meant to be gospel. And they won't make you profitable. They are more like the speedometer on a car. They can tell you how fast you are going but won't get you there by themselves.
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Agree with newwurldmn and TSLexi. The greeks and most related models can not make sure the participant make money, but they help us to avoid loss "too fast". So they are still helpful.

At least the models appear in open papers and courses can not make sure someone could earn, just my own understanding. :p
 
PatrickYu said:
Agree. The greeks and most related models can not make sure the participant make money (at least the models appear in open papers and courses can not make sure this), but they help us to avoid loss "too fast". So they are still helpful.

Just my own understanding. :p
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As I said above. The Greeks are like your motorcycle's gauges. They help make sure you won't blow up your drivetrain, but they're useless if you decide to drive without any idea where you're going.
 
Yes you still need to bet on some specific risks if you want to earn from market, bet on the underlying price directional movement, or bet on the underlying volatitlity.
 
PatrickYu said:
Yes you still need to bet on some specific risks if you want to earn from market, bet on the underlying price directional movement, or bet on the underlying volatitlity.
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And they need to be informed bets and constantly revised.

Don't fall into the trap of Long Term Capital Management, which treated mathematical models as Holy Writ.
 
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