Global or book delta and gamma. Beta is a term used to define stock/index correlation. The modality [of beta] is more useful than the numerical value, but worthless when defining the risk of the stock derivative. GE's beta of .65 isn't going to offer any insight into the management of a short 10,000-contract atm put position. Px-change related to microeconomic-risk; risks related to GE as a company and its shareholders, is infinitely more important [than beta] if we're to exclude greeks.
Negative Theta Options over Weekend
- Thread starter TraderGreg
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Global or book delta and gamma. Beta is a term used to define stock/index correlation. The modality [of beta] is more useful than the numerical value, but worthless when defining the risk of the stock derivative. GE's beta of .65 isn't going to offer any insight into the management of a short 10,000-contract atm put position. Px-change related to microeconomic-risk; risks related to GE as a company and its shareholders, is infinitely more important [than beta] if we're to exclude greeks.
Book delta it is then! Thank you. I'll use it in a sentence:
"My book delta is managed from a range of .75 to 2.0, inversely related to market sentiment"
"My book delta is managed from a range of .75 to 2.0, inversely related to market sentiment"
Yes a delta of over 1 *might* be considered a little erroneous. Do you see why beta might be a better term to describe the book's movement in relation to the market's movement? If you have another better term, let's hear it.
Cmon man, you are trading options and do not know what the menaing of delta is with respect to your portfolio. If you understood delta you would realize why say delta range of .75 to 2.0 is not making you look good.
If you have a good options broker, put all your positions in the monitor section and look for the net delta of your entire group of option positions. If you do not have that capability then at least it should show the delta of each option. Add up the deltas of each option assuming you bought one of each.
In other words, one put has a delta of -.15 and one of your calls has a delta of .20. If you are long both of them for sake of this discussion then your portfolio of these two options has a delta of .05. If you are trading SPY options then you have a better sense of the bias of your portfolio and the risks as they change over time looking at this delta and gamma, not to mention vega/IV risks.
Any "hedge fund" manager trading a book of options, as well as any retail person putting together a multi-legged position shoudl know the net deltas/gammas of their position and this is how you will manage risk of your position and how pros do it and how retailers should do it.
Instead of puffing your chest, listen to a group of us who have some experience in options trying to help you. Look to understand what delta is and how to measure the delta of your portfolio.
The only reason I say this is because you open yourself up to too much embarassment talking to people and saying a portfolio delta from .75 to 2.00 (In case you missed the point, delta maxes at 1.00).
Optioncoach, I KNOW what you're saying. Please read the next post. Stating a delta of 2.0 was my illustration that it was wrong to use the term book delta.
It was not wrong to use the term, you just used it incorrectly. Book refers to the collection of your positions. Like if I have 4 separate option positions that represents my book. Book delta is the same as portfolio delta which gives you your net bias and risk parameters. If your deltas are close to 0.00 then beta does not matter as you are market neutral which means the position should not gain or lose at that moment if the market goes up or down.
Option portfolios do not have betas really, they have net deltas, net gammas, net vegas, etc.. This is how you will manage your risk and exposure.