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Old Apr 14th, 2010, 10:27 AM   #1
maninjapan
 
 
Join Date: May 2007
Posts: 620
just wondering out loud here, but is there anything in the ratios of the greeks? theta/gamma or vega/delta etc.
perhaps lower volatility stocks tend to have a higher vega compared to delta etc......

Im playing around with some different volatility strategies and notice some pretty big differences between the greeks and these ratios of different stocks. Im just wondering if these can be compared (for a similar strike, say ATM) when choosing stocks to use for a certain strategy.....
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Old Apr 14th, 2010, 11:55 AM   #2
Martinghoul
 
 
Join Date: Jan 2009
Location: London
Posts: 6,499
Theta/gamma is obviously meaningful... Wouldn't think you could say the same about vega/delta and many others.
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Old Apr 14th, 2010, 12:33 PM   #3
maninjapan
 
 
Join Date: May 2007
Posts: 620
Thanks for the reply. Guess I just threw them out there to illsutrate without really thinking.

Probably oversymplifying things here but if I wanted to trade gamma, the more gamma I could get for my theta the better right? therefore I would want pick a stock with a@higher gamma/theta ratio.
But is there a reason though why one would have a higher/lower ratio than another stock? Or is this a valid point to compare different stocks on?
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Old Apr 14th, 2010, 05:25 PM   #4
RedEyeFly
 
 
Join Date: Dec 2007
Location: United States
Posts: 332
For the most part all listed options are running a close or near similar price model as far as the buy side is concerned and on account of this you'll be able to use a similar understanding of greeks across the board. Your nominal numbers will always be different, but if there was cheap gamma anywhere on the market people would certainly buy it and if there was a ton of expensive gamma (or overinflated IV) hanging around, in a normalized market it will get beat out.

That's not to say that sometimes some instruments are a better sale than others, but when dealing with individual equities, I'm usually weary of 'free' gamma lasting for more than a few days, or just through an event/announcement.
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Old Apr 14th, 2010, 05:58 PM   #5
Martinghoul
 
 
Join Date: Jan 2009
Location: London
Posts: 6,499
Quote:
Quote from maninjapan:

Thanks for the reply. Guess I just threw them out there to illsutrate without really thinking.

Probably oversymplifying things here but if I wanted to trade gamma, the more gamma I could get for my theta the better right? therefore I would want pick a stock with a@higher gamma/theta ratio.
But is there a reason though why one would have a higher/lower ratio than another stock? Or is this a valid point to compare different stocks on?
minj, I can't give you good answers, since your questions are about equities, about which I know very little...

In general, in the world of options, the thing you care about is not so much theta/gamma per se (as this ratio is easy to calculate and is implied in a simple fashion from Black-Scholes; it's, approximately, -0.5 * S^2 * sigma^2, if memory serves). What I do, instead of looking at theta and gamma, is look at the expected implied/realized vol ratio (you can use the historical ratio as your guide), as well as daily breakevens.
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Old Apr 15th, 2010, 09:37 AM   #6
jwcapital
 
 
Join Date: Nov 2007
Posts: 457
Quote:
Quote from Martinghoul:

Theta/gamma is obviously meaningful... Wouldn't think you could say the same about vega/delta and many others.
I would agree with this. Seems that this fraction approaches zero as time passes. I have found that the effects of gamma far outweigh the effects of theta the week of expiration. Therefore, I my short optionshahve very little time value left, I exit them (typically the Friday or Monday before expiration). Overall, the greek ratios mentioned seem more academic than useful when placing initial positions. Correct me if I'm wrong.
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