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How to find the options that has highest price percentage change (gearing)?
- Thread starter ginux
- Start date
Quote from cvds16:
It's not possible to answer that question as there are too many variables. You would know that if you understood how options work. Profittaker wrote an good answer above, that comes close for about one day, wiseguy. But go ahead and blow yourself up any day.
that's as good as not answering the question.
of course i know there are many variables and i do know that as you get closer to ITM, the drop in IV will cause a drop in the options price, offseting its rise due to delta.
but there have to be an approximate formula that takes into account all these variables.
there is a term for this: the omega of an options
Quote from ginux:
I'm trying to set up a synthetic binary play.
If it reaches a certain level above current market place before the options expire, i get double my money. Otherwise, i lose all.
That should be easy to eyeball - just look at the prices of calls at different strikes. You should be able to see which will come closest to doubling your money if the S&P hits your target. What you're looking for is a call where price = .5(target-strike price).
Quote from ginux:
It's not necessary true that the further you go OTM, the greater the leverage.
I thought so too previously but practical experience prove otherwise.
For eg. if I want to buy a SPY call option that have the highest leverage, which one should I buy?
http://finance.yahoo.com/q/op?s=SPY
Leverage, by definition, is a measure of how much you can multiply an investment. Thus, you want to invest as little as possible, but still have the option run deep into the money. This combination is rare.
That's not what you want to know.
And you cannot know 'from experience' which is the best option to buy - unless you have made this play thousands of times. If you plan to allow the results from a few random trades determine your strading strategy, you have little chance to do well over the longer-term.
You are looking for an option to buy that has an explosive gamma. That means front-month options - and the rapid time decay that goes with them.
It also means buying options with a delta in the range of 20-30. In a rally, the delta moves towards 50, and then rapidly towards 100. Again, this statement becomes more true as there is less and less time in the life of the option.
The fact that you neglected to mention that you were only interested in SPY options - suggests to me that you are not well enough educated in how options work to be investing with options.
Mark
http://blog.mdwoptions.com/options_for_rookies/
Quote from ginux:
Ok. Let's just get straight to the point.
Anyone here knows the formula to calculate the omega of an option?
Omega is the third derivative of the option price, and the derivative of gamma.
http://braverock.com/brian/R/PerformanceAnalytics/html/Omega.html
Sometimes advice, even unsolicited is helpful. Apparently not to you.
Mark
Quote from dagnyt:
Omega is the third derivative of the option price, and the derivative of gamma.
Right. As the underlying moves, delta is the rate of change of the option's price, gamma is the rate of change of the delta, and omega is the rate of change of the gamma. We can go on until we run out of greek letters and beyond, but what's the point? I don't see how that's going to help the OP create the play he wants - which is a simple formula I've posted above.