How will greeks help me?

O

osho67

I would like to improve my performance and it seems understanding and using greeks is necessary.

I currently trade iron condors and vertical spreads for credits. How I would like greeks to help me :

When to make adjustments?

Improve return on my capital. At the moment I keep my return between 1-2% per month. I go far out of the money so as to have minimum adjustments.

I dont mind making more adjustments and taking some losses as well if I can improve my overall performance

Plese explain how to use greeks and post some links as well which are easy to understand and gradually educate myself for higher levels of understanding.

Thanks and all help much appreciated.
 
Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit by Dan Passarelli (Hardcover - Jun 1, 2008)
 
Quote from zdreg:

Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit by Dan Passarelli (Hardcover - Jun 1, 2008)
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Thanks for the title of the book.
 
Quote from osho67:

I keep my return between 1-2% per month. I go far out of the money so as to have minimum adjustments.
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You cannot know your returns in advance, so I assume you are saying that your target profit - if the options expire worthless - is 1-2% per month.

FOTM does mean fewer adjustments. But you must consider that collecting small premiums again and again means that if a disaster occurs, it can wipe out a year years of profits in one month.

But, it that's comofrtable for you, then continue.

Mark
 
Quote from dagnyt:


FOTM does mean fewer adjustments. But you must consider that collecting small premiums again and again means that if a disaster occurs, it can wipe out a year years of profits in one month.

But, it that's comofrtable for you, then continue.

Mark
More...

Hello Mark,

Sage advice about FOTM positions. Most of your posts offer this type of observation about the strategies outlined in posts from other people.

But I'd like to know your specific preferences or setup's for constructing various combo positions. In other words, what underlying's do you prefer for IC's and how far OTM do you go. Exactly how do the greeks influence your picks and spread levels on specific strategies.

I'm not a rookie, but I am aware of (and scared of) the risk of every position I put on, and while I sometimes don't have a specific plan for either taking a loss or a profit on a position, I am old enough and experienced enough to know when to "pull the plug" on any given trade.

I trade verticals, calendars, ratios, IC's, butterfly's (not all at the same time since market conditions influence the positions I take on). Some trades I love, and some I am less than comfortable with. So I have some things to learn from others.

I miss Optioncoach's SPX IC forum. He took a lot of heat from the peanut gallery (Maverick74 and others), but Phil was forthright about his trading style.

BTW... where is Maverick74? He lured Optioncoach and Sailing (who I have a lot of respect for), and others to his prop firm. But one of the latest posts I saw from Mv74 indicated that he was "burned out" from watching his clients "blow their accounts".

Maybe a thread designed to layout some specific current trades with commentary from some of us could show both our savvy and stupidity (gosh knows I've got my share of both).

But anyway... I'd be really interested in knowing your's (and others) setups, criteria and positions. Specifically, I need to see how the more experienced traders here evaluate Greeks for position setups.

We will see where this goes (or doesn't go) based upon posts from you, myself or others who seem to know a hell of lot more about trading options than I do.

I'm not a natural leader, but there seems to be some here on these boards.

Regards,

Mech
 
Quote from MechTrade:

Hello Mark,

Sage advice about FOTM positions. Most of your posts offer this type of observation about the strategies outlined in posts from other people.

But I'd like to know your specific preferences or setup's for constructing various combo positions. In other words, what underlying's do you prefer for IC's and how far OTM do you go. Exactly how do the greeks influence your picks and spread levels on specific strategies.

Hi Mech,

I would like to tell you what you want to know, but I fear you will be disappointed.

First, a bit of my philosophy and how I think: The strategy is not all that important. One should trade a strategy that is comfortable. That means confidence that it should be profitable and a reasonable risk/reward picture.

What is crucial is risk management. That's whee the P/L is derived.

I trade iron condors exclusively, but do trade double diagonals when I believe IV is low enough for me to accumulate positive vega positions.

I often buy extra strangles to protect the iron condors from disasters. But, I don't always have enough insurance. It's difficult to buy when IV is very high.

I trade only one underlying: RUT. I find it easier to manage risk with all my positions in a single asset. No worries about non-correlation.

I don't consider delta as much as I would prefer, but if I were to trade by delta, my iron condor short options would have a delta between 10 and 15. That's higher than many traders choose. I trade ONLY 10-point wide call and put spreads.

How far OTM? My preference is to trade a new iron condor and collect a premium that equals $100 per remaining month. I would open Aug iron condors here at a price very near $3.00, going as far OTM as I can to get approx $1.50 from each side. But, as usual, the puts may more than the calls.

I am skipping Aug now because I don't want to trade 90-day ICs when IV is so low. When I sell vega, I want a better price.

Thus, right now I would be looking to open July IC and collect $200.

I do not open new positions in the front month. Too much negative gamma. Too little premium.

Depending on how much insurance I own and how protected I feel, I buy in my short call and put spreads individually when they get to a cheap price. Cheap is a relative term. i never allow anything to expire worthless. I cover the junk.

I'm not a rookie, but I am aware of (and scared of) the risk of every position I put on, and while I sometimes don't have a specific plan for either taking a loss or a profit on a position, I am old enough and experienced enough to know when to "pull the plug" on any given trade.

If you know when to exit, you should have less fear. Why not forget the macho stuff and just trade few enough contracts so that you are no longer afraid. Profits lead to confidence which should lessen fear - if you keep size reasonable.

Posting trades is not for me. I don't like the idea. What good is a trade without constant commentary on the trade's status and the thoughts of the trader: Is it time to consider a minor or major adjustment? Is it time to exit with a profit? Why were these strikes chosen? It's just too much.

Can you imagine someone actually posting a trade - such as selling a few put spreads and then wanting to discuss it? I cannot imagine that and don't want to participate in posting trades.

I hope my style gives you something to consider. If you like my thoughts, visit the blog.

Regards to you,
More...

Mark
http://blog.mdwoptions.com/
 
Quote from dagnyt:

You cannot know your returns in advance, so I assume you are saying that your target profit - if the options expire worthless - is 1-2% per month.

FOTM does mean fewer adjustments. But you must consider that collecting small premiums again and again means that if a disaster occurs, it can wipe out a year years of profits in one month.

But, it that's comofrtable for you, then continue.

Mark
More...

Thanks Mark for your comments.

I donot like very much collecting small premiums . I would like to learn more and do much better than what I am doing. This is the quest.
 
Thanks Mech Trade,

You have asked good questions.

Mark has given good explanations and I am studying his replies.

Thanks to both of you.
 
why would any trader want to be in the insurance business. isn't it better to let warren buffett and the guys on the floor handle this kind of business?
 
Quote from zdreg:

why would any trader want to be in the insurance business. isn't it better to let warren buffett and the guys on the floor handle this kind of business?
More...
You trade, invest, speculate in what you feel comfortable with.
 
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