"Gamma Scalping Delta Neutral Long Vega Short Theta Rho anticipating Broken Wing Condor Calendar Spreads is the road to riches." I like this strategy (I think) tell me more or at least where I can subscribe
âa nerdy-sounding priesthood, using esoteric terms such as beta, gamma, sigma and the like.â âOur advice: Beware of geeks bearing formulas.â Warren Buffett http://www.nytimes.com/2009/03/01/business/01buffett.html?_r=0
Is this what you're referring to? http://www.elitetrader.com/vb/showthread.php?t=208992 Seems like you got some legitimate input in 2010 on why that is - looks like the issue is discrepancies in attribution. Anything worth revisiting?
You'd better pay attention to the Greeks! Theta literally tells if time is making or costing you money. Dynamic delta hedging helps you make the profits needed to offset the money theta is costing you, or helps you not lose the profits theta is making you. And if you want to sell options, you need to make sure gamma and delta are as close to zero as possible, because delta hedging a position with short gamma leads to a loss snowball. And if IV is extremely volatile, you need to be vega neutral. All options trading is an exercise in financial risk management. And all stock trading based on technical analysis is an exercise in clairvoyance.
I take back my remarks about calling you a "troll and an idiot." I think you (and many others misinterpret the greeks). They aren't meant to be gospel. And they won't make you profitable. They are more like the speedometer on a car. They can tell you how fast you are going but won't get you there by themselves. That being said, they are models and models sometimes don't fit the real world. I don't know what happened to the specific option you highlighted in the paper that Soon2BeGreat mentioned. It seems that there was bad CBOE data because the stock moved but the delta was zero and the implied vol didn't move. That can't happen as delta is a function of moneyness and implied vol. Most of the times the models are pretty good. Take a sample of options on a Monday close. Compare their prices on a Tuesday and you can breakout the pnl by change in delta, gamma, vega and theta. The wild card is vega. It's the plug. If the stock doesn't move and the option does, then vega is the reason. Some people try to use the greeks and fancy options lingo to sound smart. Others use it to sell a dream to new traders. Most experienced options traders (and from what you mentioned about your background - most of your clients wouldn't qualify) use the greeks to describe their risks. It tells them what they are rooting for, but it won't tell them what they should be rooting for. Experienced options traders know this. Newbies need to learn it. But like all models, there are limitations. Experienced options traders know where those limitations are (like when your "true" delta will differ from the model delta) and can profit from them. It's not reasonable to say the greeks are useless. It's like saying "beta is useless in constructing a stock portfolio" or "the forward yield curve is useless" when determining whether to get a fixed rate or floating rate mortgage.
Agree with newwurldmn and TSLexi. The greeks and most related models can not make sure the participant make money, but they help us to avoid loss "too fast". So they are still helpful. At least the models appear in open papers and courses can not make sure someone could earn, just my own understanding.
As I said above. The Greeks are like your motorcycle's gauges. They help make sure you won't blow up your drivetrain, but they're useless if you decide to drive without any idea where you're going.
Yes you still need to bet on some specific risks if you want to earn from market, bet on the underlying price directional movement, or bet on the underlying volatitlity.
And they need to be informed bets and constantly revised. Don't fall into the trap of Long Term Capital Management, which treated mathematical models as Holy Writ.