It's All GREEK To Me....

Discussion in 'Options' started by cactiman, Dec 10, 2011.

  1. Methinks you're on the wrong website!
     
    #11     Dec 11, 2011

  2. I agree. Built in risk control. You can only lose the cost of the option/spread contract. Way less than the cost of 100 shares of the underlying stock.
     
    #12     Dec 11, 2011

  3. The term "pseudo-science" comes to mind...
     
    #13     Dec 11, 2011
  4. I have nothing against them and realize plenty of great traders use The Greeks. I know what Delta is, and heard Theta has something to do with Time... that's it. A limited understanding to be sure!
    I just don't think they're necessary to make money trading Options, which seems to be the implication when reading all the other Threads. I don't want to make my trading decisions based on mathematical formulas. Much prefer thinking about Companies, Stocks and their Charts. More fun for me. Just a personal preference of course.
    Very glad to find out I'm not alone however. Was getting worried there for a while!
     
    #14     Dec 11, 2011
  5. Pelagos

    Pelagos

    Cactiman:

    Thank you for writing what needed writing despite being off topic. The war you wrote about was three generations ago so its not surprising its facts are lost to most contemporary people. Many find it easy to pick on Greece today. How any of them are students of history?

    As far as the OP is concerned, my trading system does not require me to use the Greeks, just to use their results.
     
    #15     Dec 11, 2011
  6. spindr0

    spindr0

    I've made money a number of ways. A variety of vanilla option strategies, gamma scalping, volatility trading around earnings and during the GFC of '08 to '09, a handy sum using some simple Excel mathematical formulas for equity trading.

    Are any of these essential to making money in the market? Hardly. There are a multitude of ways to do so. What I wouldn't do is declaratively state that other ways are useless, particularly if I don't use them or more likely, don't understand them.

    Though I prefer making money the old fashioned way (theft), does it really matter how different people make their money? :)
     
    #16     Dec 11, 2011
  7. +1
     
    #17     Dec 11, 2011
  8. IVtrader

    IVtrader

    Stoic

    you just feel free to continue to ignore the value and utility of the Greeks. those of us who have labored to learn them and appreciate the "edge" they bring to our trading know fully well the difference they make in our trading. you certainly don't have to study them and you certainly don't have to like the topic. I would suggest that you refrain from commenting more about them unless or until you can c-r-e-d-i-b-l-y and i-n-t-e-l-l-i-g-e-n-t-l-y speak about them
     
    #18     Dec 11, 2011
  9. Pelagos:

    You may have misunderstood. I didn't write the long article about the History of Greece - a member called Sybilgotgame did. I wrote the comment below it, because I too thought it was off topic. I guess he agreed, because his History lesson has been removed from this Thread.
    As to Greece - I went there once on vacation in 1988 and really liked it. I wish them nothing but the best in resolving their current troubles. And of course we have enough of our own to sort out!

    cactiman
     
    #19     Dec 11, 2011
  10. Cactiman,

    If you are going to do options it is good to have a nodding acquaint with The Greeks - especially Delta and Theta. You certainly shouldn't obsess with them or think all the math used to explain them makes any difference.

    Basically what The Greeks tell you is how an option price at a particular strike will change -

    Delta - This tells you how the option price should change as the price of the underlying asset changes. Example Delta - .8 - If the stock changes by $1 the price of the option should change by .80. Stock goes from $1 to $2. If call option is $1 it should go up to $1.80

    A way to get a handle on delta is to look at an option chart. Say strikes are in $5 increments - calls 190 - $5.00 200 - $8.00 - $5 difference in strikes - $3 difference in option price. $3/$5 = .60 per dollar move in stock.

    Theta - This tells you how the option price should change as more days go by. All options have an expiration date. Theta is really only important close to expiration. But you do have to understand that close to expiration that the option price will fall even if the price of the stock does not. Or the stock can change but the option doesn't change as much as you might think just given Delta because it has lost some of its time value.

    Know easy to just figure this out. You have to look it up.

    The other 2 are a bit more obscure -
    I would just forget Rho.

    Most of the time Vega is not that important. Vega is a measure of uncertainty. What you do want to be aware of though is that if a big event is expected Vega will probably go up and this can be reflected in a higher option price. After the event Vega will fall and this can be reflected in a lower option price.

    Vega comes into play big time around earnings announcements. Vega will go up. Options go up. After announcement Vega down and options go down. So you can get earnings as expected but not get as large a pop in the options price because the Vega has fallen.

    Just so you know - there is a different set of Greeks for calls vs puts and each strike price.

    All the complicated stuff is for people doing big time trading.
     
    #20     Dec 11, 2011