The importance of Greeks

C

chad_17

Do option greeks really matter if you're holding out the position to expiration anyway (for whatever reason).

For instance, in the case of selling an iron condor with a month to expiration and collecting the initial premium, how will monitoring greeks daily until expiration be beneficial if the underlying stays within your range and you hold it till expiration?

Thanks.
 
Only reason I can think of is margin.

Oh, and I guess purely in theory, rho... since if interest rates start to go through the roof and we hit hyperinflation, you better do something with your cash sale proceeds.
 
Even if you're in a spread that has your overall risk limited, it's nice to see what your total exposure is in relation to your portfolio.

It's also nice to be able to hedge if you're stuck on the short side of a condor. For example I've got some RUT condors with the short call side at 510, and they expire this upcoming Friday. There's a chance of a squeeze higher on a break of 506, so I can either close out, or I can hedge by buying some ratio spreads out in the next month to neutralize my exposure, and then I can reassess if we continue to rip higher.
 
Your "for instance" of an iron condor is a good one. I'll tell you that I *never* hold iron condors to expiration. I'm always looking to exit in the days right before expiration. Why? Because the greeks say that as expiration approaches, your delta risk increases exponentially. If I'm sitting on a current profit that's 80% of my max and it's 3 days until expiration, why risk letting it get away from you? Take the profit, eliminate the risk. It's not worth the extra 20%.

Now, a 1-sided credit spread I could see maybe letting go to expire worthless. But only if the current price is like 2 standard deviations away from the spread.
 
Quote from stevegee58:

Your "for instance" of an iron condor is a good one. I'll tell you that I *never* hold iron condors to expiration. I'm always looking to exit in the days right before expiration. Why? Because the greeks say that as expiration approaches, your delta risk increases exponentially. If I'm sitting on a current profit that's 80% of my max and it's 3 days until expiration, why risk letting it get away from you? Take the profit, eliminate the risk. It's not worth the extra 20%.

Now, a 1-sided credit spread I could see maybe letting go to expire worthless. But only if the current price is like 2 standard deviations away from the spread.
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That's a good tip, thanks.
 
Quote from chad_17:

Do option greeks really matter if you're holding out the position to expiration anyway (for whatever reason).

For instance, in the case of selling an iron condor with a month to expiration and collecting the initial premium, how will monitoring greeks daily until expiration be beneficial if the underlying stays within your range and you hold it till expiration?
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If you're holding until expiration, there's no absolute need for Greeks. But why would you just sit there and hold anything and everything until expiration, expecially an iron condor which usually has a low probability of losing more than the credit received? No money management?? :confused:

You can make a case for either side. If your positions are simple strategies (IC's, verticals, NP/CC's, etc.) and you understand the risk and monitor intraday, Greeks are not essential. You can just as easily set a price alert at a predetermined price. OTOH, some positions can get complex and the Greeks can distill a lot of legs into an aggregate number, letting you know where you stand. So it really depends on how complex your trading is.
 
Even if you plan to sit on your hands till expiration, still think you could benefit from knowing your Greeks, they might just save your butt when you find yourself in a precarious position.
 
"Do option greeks really matter"

Interesting question. I never trade options without using "The Greeks". My advice FWIW is to learn them backwards and forwards, they've helped my options trading.
 
I know this thread is not really about whether to adjust or not. But Greeks are nice to help you adjust.

Now, on the subject of adjusting or not: The expected return of just about any options spread that is held until expiration is zero--if you use the implied volatility of the option. If you use the historical volatility, with the implicit assumption that the implied volatility will converge to the historical during the life of the options, then the expected return may be more or less than zero.

Therefore, if you don't believe that implied volatility will necessarily gravitate to historical, there is no point in holding options until expiration without adjustments, since over numerous trades, the probabilities do not work out in your favor.
 
Quote from drcha:

I know this thread is not really about whether to adjust or not. But Greeks are nice to help you adjust.

Now, on the subject of adjusting or not: The expected return of just about any options spread that is held until expiration is zero--if you use the implied volatility of the option. If you use the historical volatility, with the implicit assumption that the implied volatility will converge to the historical during the life of the options, then the expected return may be more or less than zero.
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You lost me there buddy .. I know vega is the volatility sensitivity, i know IV shoots up as options prices go up - but I can't understand the claim you make here.. I'm still a beginner ..

As for your statement on adjusting positions, how and when would you adjust, say, a vertical bull call spread, that has a week till expiration and the underlying is trading near the lower strike ..?
 
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