Option Greeks - Are they useful or noise?

[OTM-Options]

Thanks for the replies ......... and confirming my initial belief that the option greeks are useless. There was only one post indicating what he uses the greeks for as I requested in the OP, and that post was very weak in stating the pro-option greek argument.

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.

Buy high - Sell higher. How many times have you avoided buying an option because it seemed so expensive due to "high IV", only to see it much higher the following day? Same thing goes for those "traders" that think they are smart by buying low IV - Guess what dumbo's, low IV can go lower.

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.

Delta is 100% useless on its own, you must also include Theta, both change as the underlying changes making Delta and Theta 95% useless. Buying/selling ITM, OTM, DITM is just your view on the underlying and were you think it might trade in the future.

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

How can the greeks help in a spread? It's all about the underlying and were you think it might trade in the future.

Any more replies?

 

[justrading]

I really don't have time for a long discussion, as I was responding to another question.

Briefly, when I say an "event is being priced in", I'm referring to earnings or trial results, when IV tends to be astronomical. Buy that and you get an IV collapse after the announcement. Try buying and see for yourself.

Delta is just the rate at which option price changes with change in the underlying, yes it is not static, there is convexity.

ITM, OTM are less about where you think it might trade and more about how much capital, what rate of change you want. For exactly the same move, returns differ with ITM, OTM, etc.

If you want to know how to use greeks to evaluate spreads, I suggest you read the books. It is far too long a subject to cover here. Don't confuse this with a view of direction, magnitude of move and volatility. Get those wrong and the greeks won't help.

 

[nomoremondays]

Currently I have some long skew, long vol, delta flat trades on a popular ETF . It may work or it may not work, but I'm not even sure how I'd even start to set them up if I didn't have some basic ideas where the greeks generally were.
If constancy of value were a criteria all financial variables/ratios/indicators would be useless since they all change with varying frequency. Maybe the point is that traded price is the only thing worth watching in the markets, which I suppose is a school many here on ET adhere to.

 

[volpunter]

Are you really that stupid?

Thanks for the replies ......... and confirming my initial belief that the option greeks are useless. There was only one post indicating what he uses the greeks for as I requested in the OP, and that post was very weak in stating the pro-option greek argument.




Buy high - Sell higher. How many times have you avoided buying an option because it seemed so expensive due to "high IV", only to see it much higher the following day? Same thing goes for those "traders" that think they are smart by buying low IV - Guess what dumbo's, low IV can go lower.




Delta is 100% useless on its own, you must also include Theta, both change as the underlying changes making Delta and Theta 95% useless. Buying/selling ITM, OTM, DITM is just your view on the underlying and were you think it might trade in the future.




How can the greeks help in a spread? It's all about the underlying and were you think it might trade in the future.

Any more replies?

 

[jimmyjazz]

If I'm not mistaken, the originator of the thread fancies himself as an educator on options. Am I right? How in the world can that be given his views on the Greeks and trading in general?

Wow.

 

[volpunter]

Man, maybe I should really write a book. If I was able to remove all the blasphemy, ridiculing, calling out bullshit, identifying snake oil salesmen from my thought process then the rest should make me sell millions of copies.

If I'm not mistaken, the originator of the thread fancies himself as an educator on options. Am I right? How in the world can that be given his views on the Greeks and trading in general?

Wow.

 

[newwurldmn]

You are all being trolled. He's a troll with multiple aliases. He's a best a 1 lot piker who is having a laugh at your expense.

 

[volpunter]

we are all having a laugh and good time. Don't spoil the party.

You are all being trolled. He's a troll with multiple aliases. He's a best a 1 lot piker who is having a laugh at your expense.

 

[taowave]

if you are looking for confirmation, he really is that stupid.

Are you really that stupid?

 

[justrading]

You are all being trolled. He's a troll with multiple aliases. He's a best a 1 lot piker who is having a laugh at your expense.

Purely by coincidence, today we have 2 first posts asking questions about options. If these are real the boys at CBOE must be grinning from ear to ear.