you may be a directional trader who doesn't care about anything,you either take the prices ... or not, and ultimately that is what it boils down to,but you cannot sensibly price options without the BS formula-it's like advertising- everyone else uses it so you have to also.
Option Greeks - Are they useful or noise?
- Thread starter OTM-Options
- Start date
Nobody is saying the greeks are useful FOR YOU. Clearly you're one of these guys that trades options exactly like they trade stocks. Close your eyes, pick a direction, structure a trade that will profit "IF" you're right, and let it fly.
Well good for you my friend, you are a directional price trader. For anyone who trades options statistically, mathematically, without trying to predict or time the underlying, of f'ing course the greeks are important.
Again I ask, is this thread for real?
No sense stopping at option greeks,you may as well throw in Fundamentals and Technicals in your useless folder.
P.S. if you have to announce you are not a troll,you most likely are.
I'm the OP of this thread and also not a "troll". Since I don't find the Greeks useful I wanted to start this thread and find out what people use them for, perhaps give me a different perspective.
The pro-Greek posts ended up reinforcing my initial option Greek skepticism.
The thing is, it's not quite that easy. There are literally thousands of books written explaining the usefulness of the option greeks. Do you really think people are going to be able to give you a one paragraph overview on how to use them properly on a chat forum?
So be realistic my friend. You've stated that FOR YOU, the greeks are useless. Ok that's an honest assessment of where you're at with your trading. But what you actually mean is, you haven't figured out how to use them to your advantage yet, so they SEEM useless to you. Those are two very different things.
If you wanted to design a better car for example, I would hope that you'd start with getting a solid understanding on how existing cars work. How the engine works, how all the parts work together to make it functional. If you knew all that, you could make predictions on how making small changes to one aspect could actually effect the performance.
Same with the greeks. If you want to structure trades that most fully represent the concept you're trying to exploit, it would be a good idea to first understand the underlying math behind it. Once you have that, outcomes are more predictable and you can actually model future movements within certain statistical tolerances.
You'll never be able to avoid the unexpected, but understanding the greeks and how they affect your trades will reduce it to the least common denominator.
So be realistic my friend. You've stated that FOR YOU, the greeks are useless. Ok that's an honest assessment of where you're at with your trading. But what you actually mean is, you haven't figured out how to use them to your advantage yet, so they SEEM useless to you. Those are two very different things.
If you wanted to design a better car for example, I would hope that you'd start with getting a solid understanding on how existing cars work. How the engine works, how all the parts work together to make it functional. If you knew all that, you could make predictions on how making small changes to one aspect could actually effect the performance.
Same with the greeks. If you want to structure trades that most fully represent the concept you're trying to exploit, it would be a good idea to first understand the underlying math behind it. Once you have that, outcomes are more predictable and you can actually model future movements within certain statistical tolerances.
You'll never be able to avoid the unexpected, but understanding the greeks and how they affect your trades will reduce it to the least common denominator.
Time to inject some truth in here....
If you use Greeks, they are extremely useful. If you do not use them, they serve no purpose for you.
If the OP finds them useless and already stated his opinion on them, why waste any breath trying to convince him they are useful. Greeks are useless if you do not use them.
If you use Greeks, they are extremely useful. If you do not use them, they serve no purpose for you.
If the OP finds them useless and already stated his opinion on them, why waste any breath trying to convince him they are useful. Greeks are useless if you do not use them.
To say that the Greeks are useless altogether is a ridiculous statement. Yes, I'm sure there are people out there who trade very successfully without using them at all....and in fact, if you were really sophisticated, you might even discard the standard greeks for something better. At the end of the day, the greeks are quick estimates of derivatives (not "derivative securities" here....the mathematical one). The reason they're so popular I believe is because they can be calculated quickly, owing to closed-form solutions. So if you understand their strengths, limitations, and nifty ways to trick them and make them better, they're actually not bad tools to use in your trading. But if you really wanted to be hard-core, you'd use much more complicated models to come up with more accurate mathematical derivatives. It's a trade-off and I think it depends on what type of market participant you are. If you're a vol trader who scalps options day-in-day-out, the greeks are probably a very helpful tool. If you're a quant, maybe useful but not so much since hopefully you've got some better stuff in your arsenal.
At the end of the day, I think in order to be a well-rounded option trader, you should at least be aware of the basic greeks and have a functional understanding of how to use them. OPTION RISKS ARE NOT LINEAR...THEY ARE CURVED....YOU NEED DERIVATIVES TO MEASURE AND INTEGRATE ALONG CURVES. How many people on these threads talk about how they placed a correct directional bet with options and somehow lost money? They're left scratching their heads because often these individuals are used to trading linear securities and only looking to use options for their inherent leverage. That's perfectly fine, but only so long as people understand the higher-order risks that come along with the purchase or sale of an option or spread. Greeks can help with this.
Again, I'm sure there are people trading out there without the greeks and enjoying success. To them, that's awesome, keep it up. But there are a lot of people on here trying to learn or just getting started, and I believe it's very misleading for people to write hard conclusions about a tool that can really help some traders. I think people should learn as much as they can about this stuff and decide what works for them.
Best.
At the end of the day, I think in order to be a well-rounded option trader, you should at least be aware of the basic greeks and have a functional understanding of how to use them. OPTION RISKS ARE NOT LINEAR...THEY ARE CURVED....YOU NEED DERIVATIVES TO MEASURE AND INTEGRATE ALONG CURVES. How many people on these threads talk about how they placed a correct directional bet with options and somehow lost money? They're left scratching their heads because often these individuals are used to trading linear securities and only looking to use options for their inherent leverage. That's perfectly fine, but only so long as people understand the higher-order risks that come along with the purchase or sale of an option or spread. Greeks can help with this.
Again, I'm sure there are people trading out there without the greeks and enjoying success. To them, that's awesome, keep it up. But there are a lot of people on here trying to learn or just getting started, and I believe it's very misleading for people to write hard conclusions about a tool that can really help some traders. I think people should learn as much as they can about this stuff and decide what works for them.
Best.
I'm the OP of this thread and also not a "troll". Since I don't find the Greeks useful I wanted to start this thread and find out what people use them for, perhaps give me a different perspective.
The pro-Greek posts ended up reinforcing my initial option Greek skepticism.
You are making a lot of sharp operators pull their hair out which is kinda funny. Let me put it this way:
We all like the free lunch which is called diversification right? That is all about variance or risk or uncertainty reduction.
Option spreads allow you to accomplish this reduction in uncertainty by trading the whole volatility surface thus earning better than market returns. In fact, some people can make a living on trading options on a single ETF.
We use greeks to quantify and control (even arbitrage) that exposure in a not so similar way that a directional trader has to trade many names.
Anybody who accomplishes this risk/uncertainty/variance reduction would have the wherewithal to apply leverage (within reasonable bounds of course) and make a higher absolute return than the market provides.
Or we can all take out home equity loans, stick it in an index fund and call it a day. Because if you can't beat that structure in terms relative to leverage and variance, it is time to go to GA meetings.
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I would say for the OP they are irrelevant since his trading consists of buying a 1 lot OTM option and either winning or losing it all. However, that is not a sustainable strategy (although can be a speculative part of a portfolio). I use the greeks when I trade. I understand that they are simply a snapshot of that one point in time and also that depending upon which software I am using I will get different numbers. For me, understanding greeks and their trends helps me to position my trade based on the expectations I have for the underlying.