Lets say you got the trend wrong, it doesn't matter which option you bought/wrote based on optimal values for delta, gamma, theta or vega at the time, because they'll still work against you anyway in the failing trade until expiration, right? So why exactly do we use Greeks again, or am I missing something here...?
Is there any reason for not using the Greeks?
- Thread starter nxt7
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However, assuming you did somehow choose the "optimal" expression, your PNL should undoubtedly reflect that. In the case where you get things wrong, it might help reduce your losses.
If you are buying short term options for purely directional play then the greeks with respect to theta, implied volatility and delta could help you make better choices. Will not help you in your directional play but you can still be right on direction on lose money or makes much less than you thought ignoring the time decay and volatility factors of options.
It's a question to which different governments and populations have some very different answers, at the moment.
<<<Is there any reason for not using the Greeks?>>>
Laziness or just plain uneducated.
It is like this, you could be my neighbor who I see at grocery store, he is going to buy the exact same things as I do, we both meet at checkout, he goes in first and bill is $100 and I go through line and I have a ton of coupons and I end up paying $6 bucks, we do this entire year. End of the year I am going on Fab vacation from all that money saved and he is saying "Damn, I wish I had his job". And there are times when you look at the Greeks and say "hmmm, something is very off, so I will pass on the trade", next day you are thinking "Wow, that would have been instant loss".
You know on second thought since I am a seller. no using the Greeks is very bad, very bad.
Laziness or just plain uneducated.
It is like this, you could be my neighbor who I see at grocery store, he is going to buy the exact same things as I do, we both meet at checkout, he goes in first and bill is $100 and I go through line and I have a ton of coupons and I end up paying $6 bucks, we do this entire year. End of the year I am going on Fab vacation from all that money saved and he is saying "Damn, I wish I had his job". And there are times when you look at the Greeks and say "hmmm, something is very off, so I will pass on the trade", next day you are thinking "Wow, that would have been instant loss".
You know on second thought since I am a seller. no using the Greeks is very bad, very bad.
Some traders use Volatility which is related to Vega and Theta in order to determine trade genesis. They can open trades with a statistical edge with these metrics. Understanding Delta and Gamma can help with adjustments in order to control or reduce risk. If you are trading options the Greeks are well worth understanding.
In some types of trades you can mitigate losses with a better understanding of the Greeks. For example you can roll out in time, extending duration and pick your strikes based on the delta / risk level that you choose.
The only real time when greek calculations become irrelevant is when options become incredibly short dated or incredibly binary. Short dated like the day of expiration where the options that day will either be in or out of the money; incredibly binary like a drug event that can move the stock 50%+. In both cases it's likely the option will go from optionality to delta=1 or zero with not a lot of time in between.