>> If I buy 10 contracts of a GOOG option with a delta of 50 it is not going to be the same risk as if I buy 10 contracts of SUNW with a delta of 50. << Given that the size of the GOOG investment would be approx. 80 times larger, I would imagine that the risk might be a bit different. But with a delta of 50, both option positions would gain or lose 50 cts with a $1 move in the underlying. Would you now like to debate the likelihood of a $1 move in SUNW? >> What I want to avoid is lose more money than I want to, faster than I want to, especially compared to my winners. << I think that's a common goal of all investors/speculators. D'ya think that a "Greek" statistic is going to prevent that? >> Well, I understand this. But that won't give me my position size, so that for example a 2% loss in the stock would be a $1,000 loss in the option. This is what I am trying to do, not to decide where my stop will be. Looking at my portfolio is not going to help me BEFORE I enter the trade. << Selecting an option position involves more than just setting it up via only a determination of a predetermined risk level. Looking at only ONE factor is like saying, only give me trades that will provide an ROI of 250% or more. It's a bit of tunnel vision. I have earnings numbers to crunch so let's just say that you're a more sophisticated investor than I am and I'm going to bow out of this wild goose chase gracefully.
"Given that the size of the GOOG investment would be approx. 80 times larger, I would imagine that the risk might be a bit different. But with a delta of 50, both option positions would gain or lose 50 cts with a $1 move in the underlying. Would you now like to debate the likelihood of a $1 move in SUNW?" You are making my point, exactly. This is why I am looking for an indicator that tracks % instead of points. I thought it was clear, but apparently not. I don't understand why people just want to debate over this instead of trying to help. "I think that's a common goal of all investors/speculators. D'ya think that a "Greek" statistic is going to prevent that?" Of course I do. There is already a way to do it with a 'Mix" of greek. Trying to find something easier . "Selecting an option position involves more than just setting it up via only a determination of a predetermined risk level. Looking at only ONE factor is like saying, only give me trades that will provide an ROI of 250% or more. It's a bit of tunnel vision." Who told you I am looking at ONE factor ONLY? Where did you read this? Unreal. "I have earnings numbers to crunch so let's just say that you're a more sophisticated investor than I am and I'm going to bow out of this wild goose chase gracefully." Thank you so much for your help. That was a great post.
As far as I know, Lambda denotes option's leverage (i.e. % move in option price given a 1% move in the price of underlying) and sensitivity to volatility is denoted as either Vega or Kappa, but I'm sure some people use Lambda to denote it. It's just semantics. Anyway, this Lambda (option's leverage) is a relatively unknown greek so you won't find it often. I guess we could ask TOS to add it to the platform...
Candeo: With the broker you use, the easiest way to get an idea of what you want is to use the analyze tab and switch to weighted portfolio. Then you can enter additional positions and adjust the size in relation to the entire port. There isn't an easier way with your software.
Lambda is described in Natenberg p. 123 as Elasticity and is also called Omega: Lambda = omega = (underlying/option)*delta Iât exactly what youâre looking for and really candeo, it doesnât get any easier or faster than that BTW, indeed there is some issue with semantics. This is what investopedia says: Lambda: A ratio comparing change in option price to a 1% change in option volatility. It is the partial derivative of the option price with respect to the option volatility. Lambda is used as a synonym for vega, kappa, or sigma. Omega: A measure of the change in an option's value with respect to the percentage change in the underlying price. Omega is the third derivative of the option price, and the derivative of gamma. Also known as "speed". Where lambda/vega can be a semantics issue, the Omega definition is plain bull. I mean, either Omega is a synonym for Elasticity (Lambda?), or for Speed, but not for both. Unless Speed = Elasticity, but then Delta = Theta, probably. Anyway beware those web definitions.
Thank you for your posts. Omega seems to be the right greek indeed. Thank you also for the suggestion to use weight in the "analyze" tab. I am going to play with this a little bit. And maybe ask TOS to add Omega.
The definitions are completely confused. Here's a nice article about lambda (leverage): http://www.umderivatives.com/DW.Lambda.Winston.Ma.pdf But then another article starts with: "A third member of the Greek chorus is the option's Lambda, denoted by [Lambda], also called Vega." Oh man... Omega is probably NOT the greek you were looking for.
If I'm not mistaken lamda is just another name for vega because in reality the greek symbol VEGA doesn't exist.
Nice article indeed, no doubt that's the "thing". Let's just call it Elasticity and avoid the babylonian greek....