Would it be possible to trade an options strategy consistently profitably without considering/using anythine about deltas, gammas, thetas, etc.? Any theoretical comments, pros and cons? Has anyone got any practical experience, whether good and bad?
I did in the past on directional trades (All longs, no sell). You just have to understand how much you pay as a premium for vol. or more easily, where you start making money and how much is your risk. But Greeks help get an idea of how the thing can/will react.
Yes, I have experience in trading options without knowing anything about the greeks...........and I got murdered. It would be extremely foolish to even consdier options without understanding at least delta, and vega. It's like flying a plane without intruments. I learned the hard way, do yourself a favor, learn the greeks.
Yes, it's possible. Keep in mind that the Greeks allow you to measure risk and to the extent that you want to do so - hedge that risk. If you prefer to trade with little or zero risk management, your chances of long-term success are low. But they are not zero. If you are asking because you suspect that understanding the Greeks is a difficult undertaking - you are mistaken. as with anything else, you can get as sophisticated as you want. If you just understand what the Greeks represent and allow your broker to calculate them for you, there is not too much effort involved. Here's a recent Barron's article on the idea of using the Greeks. I wrote it as a brief introduction:http://online.barrons.com/article/SB124629765848169041.html Mark http://blog.mdwoptions.com/
Yes it is possible, but...you have to understand how volatile is the option you are trading the moment you are trading it. You could for instance look at a chart with the option past prices just like you would do for a stock. If you buy options you will be better off with a time frame that is longer than 30 days.
Naked long calls/puts on a short time frame as pure directional plays can probably be done if you understand the leverage and risks of being naked (but if you're are that good on direction, probably just use the underlying). Anything combining two or more positions though, like straddles, calendars, etc., it's imperative to understand implied volatility's role in pricing...if you don't, your trade could result in a loss, even if you are right on direction! Know vega. I mention short time frame earlier because you also have to understand the greek theta, which represents time decay. If you own stock and the price stays flat at say $50, for a month, you don't lose money. But if you bought a $50 call option, you are losing money everyday that month due to theta (if long options). I'm just getting into this stuff myself, and there are plenty of great websites with basic introductions. Try this one: http://www.optiontradingpedia.com/ ET's archives are also chok full of good discussions. Click search, type anything you think about. I think the main thing is that you said "...trade an options strategy consistently..." - if you want to trade any options strategy consistently, I think eventually you'll want to understand the greeks behind it. It'll make you a better, more informative trader no doubt. I keep bringing it up, but there is a thread called "SPX Credit Spread Trader" where a bunch of traders discussed trading credit spreads from '05-'07. In my opinion (I read the thread front to back in about three weeks), some of them did not understand the greeks in the vertical strategy they employed, but many of them made money (probably due to low vol environment in that period). To shut myself up, I'll just say, read all the free shit you can find on the greeks on the internet. And then perhaps buy some books too. I just ordered Natenberg's Option Volatility and Pricing. If it makes you a better trader, why not?
Let me give you a gambler's perspective. :eek: Yes, you can trade without "knowing" the Greeks but knowing what the greeks represent is very helpful. Live sports wagering is very much like the options market and in fact I use the same methodology to wager (invest) in both. I couldn't define the greeks by name for you at this moment without looking them up but for the most part I know and understand what they represent. You would never hear a sports bettor ask if you made a particular wager to capture theta or what is the delta or gamma of your wager. But you need to know for example that spreads get wider when there is more uncertainty (men in scoring position) and that the spreads will be more volatile the closer to the end of the game especially if it is a close game or near the point spread (strike) etc. The same holds true for options. The following is my view on this subject. Other views may vary. The options market in and of itself and just like the live sportbetting market does not create wealth, it only redistributes wealth (less costs which are distributed to the MM, bookie, broker). My objective for both markets is to find strategies that when you subtract the sum of your losing wagers/investments from your winning wagers/investments you will be left with a profit. It is that simple!!! Of course finding those strategies can be the hard part and there is no one right answer. What I notice is that those that claim to employ a certain strategy successfully will get blinded to other possibilities. It's as if, if you don't do it this way or my way then you can't possibly be successful. I am amused by the number of times that I have read in threads about how one can't or shouldn't do this or that and it is exactly what I am doing successfully. The point is that what they are really saying a lot of times IMO is that they don't do it that way or they couldn't find how to do it that way successfully. The moral: Do not believe any advice (not even what I am writing) without finding out more about that particular advice and testing it out yourself to see if it makes sense. In searching for strategies I have found that my best strategies are sometimes the exact opposite of what I thought when I began searching. The key here is to prevent curve fitting. Don't force the results to fit your view or what you been told, let the data "speak" to you (listen). Take what the market will give, you cannot force your view on the market. My search for strategies in both the options and live sports betting markets had absolutely nothing to do with the Greeks. The concept of the Greeks becomes important to me during the application of my strategies in the markets. There is obviously a lot more that can be discussed but I will leave it here and hope that I answered your question. Good luck. Joe.
Yes I think it is possible under certain circonstances. I only trade options (successfully) and I rarely look at the greeks because: 1) Either when I buy or I sell an option, I do it in the full expectation to keep it until maturity so variations in the meantime or not that important. 2) I mostly trade european style options. 3) They are sometimes confusing when the option does not behave the way it "should". Never forget that no matter what the numbers say, they are distorted because the option is submitted to the offer/demand. I do agree however with what some have said, even though you do not know the greeks of a specific option you want to trade, you do need to have a good understanding of volatility.