It's All GREEK To Me....

[cactiman]

Quote from spindr0:

I've made money a number of ways. A variety of vanilla option strategies, gamma scalping, volatility trading around earnings and during the GFC of '08 to '09, a handy sum using some simple Excel mathematical formulas for equity trading.

Are any of these essential to making money in the market? Hardly. There are a multitude of ways to do so.
Though I prefer making money the old fashioned way (theft), does it really matter how different people make their money?

I agree with you 100%. It's one of the great things about modern Online Trading. Everyone can find a way, or ways, which suit their own personal Trading Psychology.
BTW - As you may know, Trading used to be much more limited and expensive! One was forced to be a long term "Buy and Hold" Investor, just because of the exorbitant commissions involved. Not so now.

 

[cactiman]

Quote from Quickless:

Cactiman,

If you are going to do options it is good to have a nodding acquaint with The Greeks - especially Delta and Theta. You certainly shouldn't obsess with them or think all the math used to explain them makes any difference.

Basically what The Greeks tell you is how an option price at a particular strike will change -

Delta - This tells you how the option price should change as the price of the underlying asset changes. Example Delta - .8 - If the stock changes by $1 the price of the option should change by .80. Stock goes from $1 to $2. If call option is $1 it should go up to $1.80

A way to get a handle on delta is to look at an option chart. Say strikes are in $5 increments - calls 190 - $5.00 200 - $8.00 - $5 difference in strikes - $3 difference in option price. $3/$5 = .60 per dollar move in stock.

Theta - This tells you how the option price should change as more days go by. All options have an expiration date. Theta is really only important close to expiration. But you do have to understand that close to expiration that the option price will fall even if the price of the stock does not. Or the stock can change but the option doesn't change as much as you might think just given Delta because it has lost some of its time value.

Know easy to just figure this out. You have to look it up.

The other 2 are a bit more obscure -
I would just forget Rho.

Most of the time Vega is not that important. Vega is a measure of uncertainty. What you do want to be aware of though is that if a big event is expected Vega will probably go up and this can be reflected in a higher option price. After the event Vega will fall and this can be reflected in a lower option price.

Vega comes into play big time around earnings announcements. Vega will go up. Options go up. After announcement Vega down and options go down. So you can get earnings as expected but not get as large a pop in the options price because the Vega has fallen.

Just so you know - there is a different set of Greeks for calls vs puts and each strike price.

All the complicated stuff is for people doing big time trading.

Quckless:
Thanks for taking the time to explain! Like I said, I have nothing against The Greeks, and if any of them can help and don't add unnecessary complications I'll gladly make use of them. Will study what you wrote and try to apply it. Thanks again.

cactiman

 

[stoic]

Quote from IVtrader:

Stoic

you just feel free to continue to ignore the value and utility of the Greeks. those of us who have labored to learn them and appreciate the "edge" they bring to our trading know fully well the difference they make in our trading. you certainly don't have to study them and you certainly don't have to like the topic. I would suggest that you refrain from commenting more about them unless or until you can c-r-e-d-i-b-l-y and i-n-t-e-l-l-i-g-e-n-t-l-y speak about them

I've been a professional in the biz for 35 years. And yes I too have studied the BSM and greeks in the hope of finding some value...something that provides real value in my trading decisions. I've wrote detailed VBA to analyze the model over an extended time, and posted the results here. As a supervisor of options trading at many firms I've had the chance to observe thousands of other options traders. Of all the option traders I have know, the ones who continue to attempt to find some formula...some new calculation, some software that tells them when to jump...and then jump, are the ones who continually get wacked.

It's not a question of ignoring the value and utility of the Greeks, it's more of a failure of the Greeks to show any real value.

You disagree? Prove me wrong.... with c-r-e-d-i-b-l-e and i-n-t-e-l-l-i-g-e-n-t real world, real time examples. I've asked for this before and I'm sure I'll get the same result.....zip.

 

[sle]

Quote from stoic:
Prove me wrong....

Actually, you're totally right. It's good to have people like you in the market - you put bread on my table. Keep up the good work.

PS. Really, you saw thousands of options traders?

 

[Martinghoul]

Quote from spindr0:
I've made money a number of ways. A variety of vanilla option strategies, gamma scalping, volatility trading around earnings and during the GFC of '08 to '09, a handy sum using some simple Excel mathematical formulas for equity trading.

Are any of these essential to making money in the market? Hardly. There are a multitude of ways to do so. What I wouldn't do is declaratively state that other ways are useless, particularly if I don't use them or more likely, don't understand them.

Though I prefer making money the old fashioned way (theft), does it really matter how different people make their money?

+1

 

[Martinghoul]

Quote from stoic:
IMO "The Greeks" are by and large useless. And despite my invitations to the advocates of the Greeks here, no one has shown any real world real time evidence to the contrary.

You're not all alone. there's lots of us old timers out there, plodding alone making realistic returns.

Most of the posts here are from the wanna-bees who get some kind of kick out of posting a lot of gobiligoop jargon about IV this, skew that.....and gamma scalp this. They think it makes them sound like experts.

The fact that you don't understand Greeks doesn't make them useless. But, please, do continue to have the courage of your convictions. I am with sle on this. The more people like you out there, the more money for people like me.

 

[newwurldmn]

Quote from stoic:

I've been a professional in the biz for 35 years. And yes I too have studied the BSM and greeks in the hope of finding some value...something that provides real value in my trading decisions. I've wrote detailed VBA to analyze the model over an extended time, and posted the results here. As a supervisor of options trading at many firms I've had the chance to observe thousands of other options traders. Of all the option traders I have know, the ones who continue to attempt to find some formula...some new calculation, some software that tells them when to jump...and then jump, are the ones who continually get wacked.

It's not a question of ignoring the value and utility of the Greeks, it's more of a failure of the Greeks to show any real value.

You disagree? Prove me wrong.... with c-r-e-d-i-b-l-e and i-n-t-e-l-l-i-g-e-n-t real world, real time examples. I've asked for this before and I'm sure I'll get the same result.....zip.

How did these many options trading desks that you supervised make money? Or did they all lose money?

 

[HustleThePlanet]

Quote from cactiman:

All I read about here are "The Greeks"!
Is there anyone out there who looks at Single Options and Vertical Spreads as Surrogates for Stocks?
Anyone who analyses the Underlying Stock Chart for its Trend + Support & Resistance Levels, and researches the Company to see if it has good Earnings & Sales?
Anybody influenced by Ken Trester, who doesn't even use the Greeks and has made a living trading Options since 1973!?
I failed Statistics 40 years ago, but can make money trading Options.
Am I all alone? A Dinosaur? Any other Old Timers out there?

I trade options as a replacement for the underlying when I intend on holding a position overnight. I usually only buy calls or puts by themselves. The price of the underlying relative to the strike, and the amount of time to expiration is all I really look at. I typically do not even look at the greeks, but this may just be a consequence of understanding them so well that I do not need to look at them anymore. It is hard to judge whether I could have gotten away with never learning the greeks in the first place though. IV/HV receives far more of my attention.

 

[ForexForex]

• Can you drive a car without knowing how the automatic transmission works? Yes
• Can you trade options without knowing all the details about the Greeks? Yes

 

[falcon]

Quote from ForexForex:

• Can you drive a car without knowing how the automatic transmission works? Yes
• Can you trade options without knowing all the details about the Greeks? Yes

Ofcourse you can. Can you play baseball in the street Yes

Can you play with the pros if you know how to hit a ball??

A little bit of knowledge is a dangerous thing.