Option Greeks - Are they useful or noise?

What will you do if you are managing thousands of different options? In that case, you’ll find the Greeks quite useful. Especially if your models explain more than 95% of the P/L

 

All three of those replies center around the same pro-option greek view. The greeks can be used to determine the Risk/Reward, P/L and quantity of a position based on how the underlying might move in the future.

IMO ..... Visualizing a trade mentally to determine the Risk/Reward, P/L and quantity is much more efficient than trying to decipher a bunch of constantly changing values. The traders view on the underlying will affect how the option greeks are interpreted.


Re: "Options are complicated and rightly so."

Options are not complicated. Any position that can't easily be visualized is a position that has conflicting legs that serve no purpose. The option greeks won't help.

Re: "Directional trading is for other people who will get a big surprise sooner or later as the options will behave in an unexpected way."

All option positions are directional, and have the potential to surprise sooner or later. Options do not behave in an unexpected way, the underlying behaves in an unexpected way. Again, the option greeks won't help.



You guys have failed to demonstrate the benefits of using the option greeks. My initial skepticism has now been confirmed - the option greeks are useless. MM's might need them to price the options, but for the trader they are just noise that should be avoided.

I would like to thank all that contributed to this thread, it has been very insightful.

 

You cannot “ mentally visualize" 20K different options at the same time.

 

Yeah,and by your logic visualizing mentally getting laid is better than getting laid..Newsflash,you may think you are right, but in reality you are not

For shits and giggles go short a boatload of 90 percent options in the instrument of your choice,close your eyes,and let me know how your delta hedging works out. .

 

You are living/trading in a fantasy world. You keep saying that all that matters is the underlying. That would only be true in a deterministic vol world. Take a look at the VIX. Vol is clearly stochastic....it moves around. The P&L of your option portfolio now carries significant risk in terms of changes in implied vol. The underlying could literally sit still, yet some news hitting the wire could cause the vol surface to shift dramatically, having profound effects on your P&L.

I'm all for making things as simple as possible, and yes some people spend WAY too much time focusing on the nuances of the greeks, but the statements you are making are flat out wrong.

 

Who uses 2nd and 3rd order greeks on a regular basis? Not like gamma but speed, vanna, totto, etc.

 

Charm, Color, and Speed can all be important if you're trying to align a broader portfolio of several different positions and expiries into a more uniform view of volatility.


This thread has to be troll bait though because there's no possible way anybody could ever believe the option greeks are useless. Sure, some people over analyze them and get overly complicated with it when our goal as traders should be to make things as simple as possible. But useless? I would ask if you're retarded, but that would just be taking the troll bait...

Simply put, OF COURSE they are important ! Just don't forget, they are only snapshots in time and are not meant to be clairvoyant over longer time frames...

 

With over 35 years of experience in trading the markets, I'd have to say the Greeks are useless!!!

And after repeated requests NO ONE has ever shown me otherwise.


p.s. I am not a troll.

 

I think we have shown you multiple times, and you clearly do not have any institutional experience.

 

That would be incorrect......but you're welcome to take the challenge here on ET right now.

Before retirement I held the 3, 4, 7, 9,10,15, and 24.........but I fail to understand just what "institutional experience" has to do with a theoretical model.

Theoretical is the key word.