using the greeks ?

Discussion in 'Options' started by silver217, Mar 13, 2010.

  1. example: a spread: 10 of A and -10 of B.

    A = call NDX april 2025 closed 12/3 at 7.40 $
    delta = 0.1544
    gamma = 0.0025
    vega = 1.3804
    theta = -0.3377

    B = call NDX april 2050 closed 12/3 at 4.40 $
    delta = 0.1012
    gamma = 0.0019
    vega = 1.0279
    theta = -0.2502

    Can somebody in this forum check if my math is correct ?

    positionvalue = 10x7.4 - 10x4.4 = 30 x 100 = 3000 $

    assuming no change in value or volatility then
    one day later the positionvalue is:

    (-0.3377 x 10) - (-0.2502 x 10) = ( -0.875 x 100) -3000 = 2912.50 $

    correct ?

    Is there a program available that calculates a position's
    future value using the greeks ?
  2. Again, I get the feeling someone is going to tout a software product that does greeks for you very soon.

  3. I do but I do my stuff Paper and pencil + HP calc. I work out the scenarios etc on paper. Been doing it that way for years out of habit.
  4. ...only by the germans, as punching bags in war and for the beaches when on vacation....:D
  5. Yes.

    What most people don't understand is the the Greeks serve one purpose. They allow you to measure risk.

    Once risk is quantified, you may - if you so choose - reduce that risk. That's the beauty of options.

    It's highly likely that your broker offers a chart that shows the change in the value of your position under various scenarios. Ask them what they have.

  6. Well I closed out a load of positions. I looked at the greeks and figured, Bird in hand worth two in the bush. Risk levels were too high for whatever excess potential profit I can grab.

    I probably gave up some profits but I prefer keeping risk levels at a point where I feel comfortable with.

    You need to understand the greeks if you want to have a clue how your situation looks. Would you try to build a home without rulers?
  7. The problem with greeks is the calculations are endless and nothing is static. What was true tomorrow has now changed and your risk profile (usually static) is skewed towards yesterday's profile and not towards where it is going.

    I have developed an excel file allowing me to roughly calculate where option prices could go. It opens up risk understanding, but predictability is still very bad using greeks for the reason i mentioned above. You need a lot of data, math, statistics and very good modeling skills.
  8. This isn't a problem with the Greeks, per se. It's a problem with trading in general, which is why scenario analysis is something I use a whole lot.
  9. I use the greeks for Hedging purposes as well. If you do not use and understand the greeks you really do not have any business messing with options. Stick to naked equities :)
    #10     Mar 17, 2010