It's all "greek" to me! (help)

B

billb2112

I'm looking into trading options on indexes. I've been reading a lot about options and the greeks, but have not actually traded yet. I thought I was ready until I got some quotes tonite. I'm looking at XAU and I want to buy puts. I was trying to figure what the best option was when I looked at the quotes and got thoroughly confused. Here's what I see...

02 Aug 60 .45 .75 .60 + .29921875 1 67
02 Aug 65 1.05 1.55 1 - .1484375 12 1,044
02 Aug 70 2.40 3 2.30 + .30 22 1,126
02 Aug 75 4.50 4.90 4.70 + .70 139 939
02 Aug 80 7.40 8.10 6.30 - .5984375 2 626
02 Aug 90 15.20 16.20 19.40 +6.200781 0 199
02 Aug 95 19.70 20.70 -17.398438 0 0
02 Aug 100 24.40 25.40 27.70 +5.801562 0 1
02 Aug 105 29.30 30.30 -26.699219 0 0
02 Aug 110 34.20 35.20 -31.50 0 0


Ok, the XAU was -2.80 today (closed @ 75.47). According to delta, I can make a rough guess that an option at the money will move about 50% of way (so a move of +1.20 on a put) for Aug 80 would be expected. But no, it LOST .60. Aug 90 gains 6.20 and Aug 95 loses 17!! Are my quotes screwed up or am I *REALLY* missing something?? And looking at the call side a number of the options gained ground!
 
dont do it until you know what the fuck you are doing. If you must, do it as a spread to minimize those greeks you dont know YET, ...get shelly natenburgs book and read it, then youll be ready
 
Damn right I'm not ready!! <hehehe> ... I plan on hitting the books again this weekend, but I was really hoping for a quick explanation regarding these huge variations and how options can lose when the underlying securities move in the desired direction. I believe the books I have explained it WAY too simple! One basically reinforced the idea that once you're in the money, plan on things moving dollar for dollar with the underlying security or index. Another explained that delta is 50% at the money and about 75% deep in the money.

These prices I saw this evening make those texts essentially worthless. According to these quotes, you can't even guarantee that a move in the desired direction is even going to be profitable!
 
Don't even think of trading index options until you know greeks in/out. They are unforgiving due to spreads and high $ amount of options. Read at least 3 books to make it stick in your grey matter. Here is my recommends...
Mcmillan, Larry
Natenburg, Sheldon
and when you really find those 2 boring enough -
go to Cottle, Charles.
Affter feeling cocky at mastering the first 2, reading cottle's will make you feel like you've been bitch slapped. Then you can trade them options (small).

Good luck

PS Options have a volatility component when they get so high or so low, delta's don't make sense due to vol swings. Example an at the money call with 50 delta might sit be unchanged even after a big move since vol has expanded the past week.

Hope this helps
 
You may be better off trading NEM (or any other gold equity option) instead of the XAU since the XAU is still American style which may mess up a spread strategy.
 
Originally posted by billb2112


Ok, the XAU was -2.80 today (closed @ 75.47). According to delta, I can make a rough guess that an option at the money will move about 50% of way (so a move of +1.20 on a put) for Aug 80 would be expected. But no, it LOST .60. Aug 90 gains 6.20 and Aug 95 loses 17!! Are my quotes screwed up or am I *REALLY* missing something?? And looking at the call side a number of the options gained ground!
More...

Son,

Here's the problem..Usually when looking at gain/loss for the day on an options quote, your data provider is showing you the amount that the option gained or lost since the last trade(not the current bid and ask) Since some of the OTM options on the XAU are more illiquid than a bowl of day-old pancake batter, some days they are not trading at all. If the last time the option traded was say last Friday, when the XAU was down substantially, Then the quote (gain or loss component) will be way off in relation to yesterdays close.

Hope that helps.
Louise
 
That makes a little more sense. Especially since I was getting different quotes from different sources.

I have to ask though, what's the point of giving the difference of the last trade??
 
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