Understanding Greeks

Ok, take for example a recent position I entered.

I felt the XAU was in a consolidation phase and the trend was still bullish. I entered an April Bull Put Spread for a net credit of .35

The strikes used:

Sold 10 April 200
Bought 10 April 195

My question is, tell me how (politely asking) theta, vega, gamma, delta will affect my position? If the markets moves against me, how will the greeks help/save me?

how do the greeks tell you when a trade is a good one or a bad one?

To me, with this trade, I playing on several things:

1. The trend is my friend

2. Time

3. I've allowed for some room in the price


Surely some of you are looking at my example and probably want to reach through the monitor and smack me!!! I felt it was a good trade that offered suitable returns and offered some level of downside protection.

I'm hoping the starting of this thread will make me a better trader/investor and further increase my odds.

To those of you really educated in the area of greeks, your input, no matter how hasrsh, is greatly appreciated.
 
Quote from CrimsonTyde:

Ok, take for example a recent position I entered.

I felt the XAU was in a consolidation phase and the trend was still bullish. I entered an April Bull Put Spread for a net credit of .35

The strikes used:

Sold 10 April 200
Bought 10 April 195

My question is, tell me how (politely asking) theta, vega, gamma, delta will affect my position? If the markets moves against me, how will the greeks help/save me?

how do the greeks tell you when a trade is a good one or a bad one?

To me, with this trade, I playing on several things:

1. The trend is my friend

2. Time

3. I've allowed for some room in the price


Surely some of you are looking at my example and probably want to reach through the monitor and smack me!!! I felt it was a good trade that offered suitable returns and offered some level of downside protection.

I'm hoping the starting of this thread will make me a better trader/investor and further increase my odds.

To those of you really educated in the area of greeks, your input, no matter how hasrsh, is greatly appreciated.
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Well, I have nothing further to say with regard to the Greeks, not because they aren't important, but rather because I've been rendered nearly speechless after reviewing your trade. Have I misunderstood you or did you actually establish a position that netted you a whopping 35 cent credit with a max loss of 4.65?!? Son, if that's in fact what you did, it seems to me there are more basic trading tomes that you should read before graduating to the Greeks.
 
Hello Traders:
Greeks are the tools of the trade. If you enter into a trader without using them (or being able to realize how they affect your position during the life of the trade), you are at a disadvantage. Also you are competing with other traders (some of whom are the counterparties to your position). Those that are knowledgeable about Greeks have an edge over you. After a while, it you last long enough, you will figure out that it is just a matter of time before the edge you are give up every day takes you out. Finally, the real reason you need to understand greeks is because the relationship between the greeks and your position is NOT LINEAR. This means you and your position are subject to significant changes in your position, without being aware of it. To put it in practical terms, you may "wake up" one day with a position that is quite different from a P&L standpoint, than you thought it was. The good part (the only good part) of that experience is that it will only need to happen once for it to make a real impression on you. I hope you will get your skills together before this happens. Reading (and understanding) either Natenberg or McMillan will suffice as a beginning. Good Luck, Steve46
 
Quote from Hello_Dollars:

Well, I have nothing further to say with regard to the Greeks, not because they aren't important, but rather because I've been rendered nearly speechless after reviewing your trade. Have I misunderstood you or did you actually establish a position that netted you a whopping 35 cent credit with a max loss of 4.65?!? Son, if that's in fact what you did, it seems to me there are more basic trading tomes that you should read before graduating to the Greeks.
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Whether you feel its a good trade or not is of little interest to me. There's probably several hundred readers implementing such trades as we speak and we could care less whether you feel this is a good trade.

With regards to risk vs. reward, I'm only risking 4.65 if I plan on holding no to it to the end. Do we ever do that when a position starts to go against you? NO.

For example, if I felt that a particluar stock was going to experience significant price swing in the next 30 days and purchased a April Straddle for $5.00, then this is my total risk. If it moves I may profit, if it doesn't I lose $5.00 (assuming you hold to the end). But if I buy a JULY straddle for $10, is the $10 at risk? NO. If I sell after 30 days, I may lose 15% in time value. therefore, my total risk is not $10, but $1.50-2.00.

With regards to the HUI position, if this position moves against me and I need to close it out, then I may lose $0.50 to $1.50. So in fact, I'm earning .35 on a 1.50 risk, and this is a risk I'm willing to take. OVer the past year and a half, I've placed close to 70 trades such as this and not once have I ever sustained a maximum loss. Does that mean I never lose? Of course not, but my losses have been kept to a minimum (1.50)

Another point: I mainly (9/10) buy indexes to avoid the possibility of a gap down or up.

But now back on topic, what are the greeks saying about this position?

thanks.
 
Quote from CrimsonTyde:

Whether you feel its a good trade or not is of little interest to me. There's probably several hundred readers implementing such trades as we speak and we could care less whether you feel this is a good trade.

With regards to risk vs. reward, I'm only risking 4.65 if I plan on holding no to it to the end. Do we ever do that when a position starts to go against you? NO.

For example, if I felt that a particluar stock was going to experience significant price swing in the next 30 days and purchased a April Straddle for $5.00, then this is my total risk. If it moves I may profit, if it doesn't I lose $5.00 (assuming you hold to the end). But if I buy a JULY straddle for $10, is the $10 at risk? NO. If I sell after 30 days, I may lose 15% in time value. therefore, my total risk is not $10, but $1.50-2.00.

With regards to the HUI position, if this position moves against me and I need to close it out, then I may lose $0.50 to $1.50. So in fact, I'm earning .35 on a 1.50 risk, and this is a risk I'm willing to take. OVer the past year and a half, I've placed close to 70 trades such as this and not once have I ever sustained a maximum loss. Does that mean I never lose? Of course not, but my losses have been kept to a minimum (1.50)

Another point: I mainly (9/10) buy indexes to avoid the possibility of a gap down or up.

But now back on topic, what are the greeks saying about this position?

thanks.
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Dude, read a friggin' book. You wan't us to change your diaper too? You're an accident waiting to happen.
 
Quote from ktm:

As far as expectancies and probablities of a trade being successful, I plan on all of them going straight to hell.
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LOLOL! And I mean literally too!

However, I do too and that's just the way I approach it. That's not to say I apply that to everything in life. I have been going to pro baseball games for 20 years, and every time I go, I expect to catch a foul ball. Finally, last year, I caught my first one.

HD I respect your opinion, and you make excellent points throughout, as always. I actually have taken it upon myself to learn how the greeks relate to option pricing. But for me, it doesn't really make a difference in trade selection. I like writing covered calls, and as you know I am thinking of doing some ratio call writing. The success of the strategy, imo, is dependent on my ability to select the right underlying.

I think one needs to know the greeks if they are trying to take advantage of them, otherwise I'm not so sure about the need of an intimate knowledge. Btw, point well taken about Nate.
 
Quote from Hello_Dollars:

Dude, read a friggin' book. You wan't us to change your diaper too? You're an accident waiting to happen.
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Clearly an expert. Yet you haven't provided any details are help, rather criticism. Please post the trades you're currently holding and explain the greeks. then maybe myself and other readers can get critical of your trades.

Seriously. Please enlighten us with some of the current trades you're holding and share your almighty wisdom and explain the greeks and the reasoning behind such positions. Otherwise, put a diaper in it!
 
Quote from CrimsonTyde:

Clearly an expert. Yet you haven't provided any details are help, rather criticism. Please post the trades you're currently holding and explain the greeks. then maybe myself and other readers can get critical of your trades.

Seriously. Please enlighten us with some of the current trades you're holding and share your almighty wisdom and explain the greeks and the reasoning behind such positions. Otherwise, put a diaper in it!
More...

My biggest current position by far is short you.
 
Quote from Hello_Dollars:

My biggest current position by far is short you.
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Much like your wife's behind, all fat and no meat. Put some trades down. You've apparently have a lot to say, show us how a REAL TRADER does it!!! Otherwise, enjoy the diaper. (It's a Huggies speacial, just for you!)
 
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