Well, now I'll have to know Greeks

Discussion in 'Options' started by Arnie Guitar, May 24, 2006.

  1. My broker now has a new account view to select, "Option Exposure".
    It reads from L to R.
    Symbol, Delta, Position Delta, Pos. Gamma, Pos. Theta, Pos. Vega, Pos. Rho.

    Great, more stuff to study.
    I'll have to learn what these numbers mean........:( :confused:

    Yes, I know I already should know..........
  2. OK, anyone up for a lesson?

    Here is one position.

    Short June MO 60 puts

    MO close 70.91

    Delta -.070
    Pos. Delta 70
    Pos. Gamma -16.00
    Pos. Theta 12.00
    Pos. Vega -25.00
    Pos. Rho 3.00

    What does that mean?

    Am I in trouble, again:( ?
  3. Arnie learning greeks ? I can see CBOE members panicking right now ; they should just sell the seat asap.
  4. :D
  5. just kidding , bro. But you should really learn greeks ( at least basics) if you trade options
  6. No offense taken.

    I'll try to learn,
    but it is a little intense,
    and I'm not talking about the circus.
  7. MTE


    A quick rundown.

    Pos. Delta - means that you position will gain $70 for every $1 rise in the stock price.
    Pos. Gamma - for every $1 rise in stock price your delta will fall by 16.
    Pos. Theta - holding everything else constant, you will gain $12 with each day in time decay.
    Pos. Vega - for 1% rise in volatility you will lose $25
    Pos. Rho - for 1% rise in risk-free interest rate you will gain $3.
  8. Thank you very much for taking the time to post that reply and explanation.

    I truly appreciate it.
  9. Hey Arnie, nice position. Gotta know your greeks to make all that "easy money", LOL.

    Here's a little addition to your lesson; did you watch the volatility of those puts as well as the 65's spike on the news released late yesterday regarding MO?

    You see, they got a lawsuit filed on them for 300M or so bucks and the puts spiked because of all those people that are plowing money into MO over the past couple of days wanted some "insurance". You see there was plenty of "insurance" available, but at a high premium.

    Just a little real life example of how the options acted upon news and the IV spike. You can also watch the IV spike then collapse each Wednesday afternoon and Thursday A.M. due to the impending Engle court case decision. The stock also reacts as well. People start to come in on Wed afternoon and the decision is either released by the following morning at 11:00 AM or not. The IV spikes and the stock also finds support and rallies a little, then by 11:00 Thursday IV comes down and the stock sells off a little. That's been a good trade over the past 4 months or so, but now there's new money seeking MO for safety and it isn't as noticeable. Now MO is going into dividend distribution mode and the "collectors" are coming in.

    BTW, I also actively trade MO as one of my largest positions.

    Good luck to ya and stay at it.
  10. Hi Arnie
    Greeks don't need to be very complex. Simply look at your position and you can work most of them out. The greeks just give you another way of looking at and quantifying the risks inherent in your position. So I'll just add a little to mte and algorithm's excellent posts.
    You sold/shorted ten otm puts. This means you are bullish and that is reflected in your positive delta (selling puts gives you positive delta, buying puts gives you negative delta), i.e. you want your underlying to go up or at least stay above your short strike. One put has delta of 7 but you must have sold ten to get a position delta of 70 (7x10). Whenver you sell an otm option you get a negative gamma and a positive theta, i.e. time decay works in your favour but the negative gamma tells you that you don't want your underlying to move much, if at all . Also, when you sell you are shorting vega, i.e. vega is negative and this means that you want iv to drop for you to become more profitable (intuitively you sold the naked puts because you thought iv was high and thus good premium could be collected). Obviously if you're wrong in your prognosis and iv goes up it will have a detrimental effect on your position. Rho I don't pay much attention to and isn't relevant for most short term option trades.
    So, what does all this mean?
    Well, theta is working in your favor, as each day passes you make a bit more money. Gamma on the other hand can be a killer if the underlying makes a significant move. The same goes for vega, except that you probably looked at the iv of your short put and decided that it has spiked and will most likely come down/revert to mean (I assume that, like a good trader, you have looked at the put's iv before placing the trade, right?)
    Daddy's boy
    #10     May 29, 2006