Greeks Are For Geeks?

Discussion in 'Options' started by cactiman, Dec 16, 2011.

  1. Here are some quotes from "Using 'The Greeks' To Understand Options" by Jim Grahm:

    "Trying to predict what will happen to the price of a single option or a position involving multiple options as the market changes can be a difficult undertaking. Because the option price does not always appear to move in conjunction with the price of the underlying asset, it is important to understand what factors contribute to the movement in the price of an option, and what effect they have.
    Options traders often refer to the delta, gamma, vega and theta of their option positions. Collectively, these terms are known as the "Greeks" and they provide a way to measure the sensitivity of an option's price to quantifiable factors.
    The Greeks help to provide important measurements of an option position's risks and potential rewards. Once you have a clear understanding of the basics, you can begin to apply this to your current strategies. It is not enough to just know the total capital at risk in an options position. To understand the probability of a trade making money, it is essential to be able to determine a variety of risk-exposure measurements.
    Since conditions are constantly changing, the Greeks provide traders with a means of determining how sensitive a specific trade is to price fluctuations, volatility fluctuations, and the passage of time. ...understanding of the Greeks...can help you take your options trading to another level."

    OK. Fair enough. I have enough left upstairs to understand what he wants to teach me .
    But by the time I got done with the complicated articles about each individual "Greek", and looked at the charts and formulas involved, I said to myself: "You've Got To Be Kidding Me!"

    So would one of you guys/gals have the patience to take me step by step through an ACTUAL TRADE, and show me how you USED THE GREEKS TO MAKE MONEY?
  2. That's a bit much to ask, methinks. But as an example, I bot a stock at 96 in Oct and it moved against me. I probably should have cut my small losses and run but I got stubborn and married it. Over 2 weeks, I utilized 8 different options (some bot/sold more than once) and unloaded it at 83 for a net gain of 2+ pts. A lotta work for that and not something to brag about. But even a break even would have been a victory with that large of a clunker. Using delta enabled me to keep track of my net position and adjust as needed. I was somewhat Gamma Scalping.

    Here's a simple article that might provide some understanding one use of delta.
  3. spindr0:
    Thanks for the example. I copied the article also, and will check it out.