Option Greeks - Are they useful or noise?

OTM-Options · Apr 1, 2015

Option Greeks - Are they useful or noise?

Gamma
Theta
Vega
Impvol
Delta

IMO ..... Since the values continuously change based on the stock I find them to be useless. What do you guys use them for?

volpunter · Apr 1, 2015

Lol. Is this an April Fools post? Or just your typical ET level post?

OTM-Options said:
Option Greeks - Are they useful or noise?

Gamma

Theta

Vega

Impvol

Delta

IMO ..... Since the values continuously change based on the stock I find them to be useless. What do you guys use them for?

traderob · Apr 2, 2015

so what is the answer? Seriously I buy puts and calls based on direction and close to expiration so how relevant are they.

justrading · Apr 2, 2015

roberk said:
so what is the answer? Seriously I buy puts and calls based on direction and close to expiration so how relevant are they.

I always look at the IV of whatever I'm buying in relation to other expirations to make sure I'm not overpaying. High IV simply means an event is being priced in.

As for Delta, aside from what it tells you, if you buy ITM you get higher absolute returns, OTM gives better precentage returns. DITM might be less liquid depending on the instrument, quoted spreads wider.

The other Greeks become important with spreads, wouldn't dream of trading them without looking at the Greeks.

lucysparabola · Apr 2, 2015

There are a few ways to win with options;

a) always be right on direction of the underlying
b) always be right on direction of volatility
c) be right on both enough to overcome when you're wrong on both equally or separately.

Victor123 · Apr 2, 2015

If you are holding all your options to expiry, then greeks are not that important. But if your are 'trading' options, they are the most important.

volpunter · Apr 2, 2015

"and you are long the option" you might want to add.

Victor123 said:
If you are holding all your options to expiry, then greeks are not that important. But if your are 'trading' options, they are the most important.

Victor123 · Apr 2, 2015

volpunter said:
"and you are long the option" you might want to add.

Correct, long the option. or short an European option.

volpunter · Apr 2, 2015

Imagine you are short a European call, price keeps on rising while you are unhedged. Are you sure you do not care about your exposure to the underlying?

Victor123 said:
Correct, long the option. or short an European option.

Victor123 · Apr 2, 2015

volpunter said:
Imagine you are short a European call, price keeps on rising while you are unhedged. Are you sure you do not care about your exposure to the underlying?

I am so sorry, I was only thinking of a covered call. Of course you are right.