What am I missing?

TskTsk · Jan 31, 2014

Yes, for an entire position.

Not sure I understand you, but the P&L at expiry is simply the above with the final spot price.

jimmyjazz · Jan 31, 2014

Just that the P/L at expiry can be calculated a priori with no Greeks. It's simply a function of the intrinsic value of the position (i.e. a function of spot and strike prices).

TskTsk · Jan 31, 2014

Yes true, and the result from calculating it that way, should be the same as the result from using the above formula, with the final spot price inserted.

stwh · Oct 2, 2014

Maverick74 said:
Let me try to be a value add here. I have seen many option traders over the years (I was at an options prop firm for 8 years after all) and honestly, the reason most guys lost money trading long premium directionally is not because of the greeks, it's because they were bad traders. I'm being serious here. I saw their trades OK, I saw what they were "trying" to do. And the truth is, they simply were not good directional traders. See, here's the thing with options, both buying and selling. People have a tendency to make a call on some stock, say IBM. I think IBM is going higher. Since I'm long the calls and not the stock, I throw risk management out the window. Say I put the trade on when IBM is at 200. Now if I was buying the stock, I might put a 190 stop on (5%). That's reasonable. But with the calls, guys think, I don't need to worry about a stop. So the stock goes to 190, 185, 180, 175 and they either hold or buy more. This is analogous to a premium seller who sells juice, has it go in his face and then rolls up and out to avoid taking a loss.

I swear to God I don't know what it is with options guys and not taking losses. But they are the worst. So I hear these guys say all the time, I bought such and such calls and lost money even though I was right and then they blame the greeks. It's NOT the greeks and your call was NOT right. Just because the stock "eventually" went up does not make you right. I go nuts when I hear this shit. Just admit it, you were WRONG! You bought an option on stock XYZ when it was a 100 thinking it was going to go higher NOW. It didn't, it went down, sideway, up and back down and finished flat over a one month period let's say and then they get exited about the damn greeks.

Look, trading is done on the margin. Not margin as in buying power, but margin as in marginal return. An economic concept. In other words, details matter, numbers matter, time matters. In the business world they call this logistics. People study this stuff in school dealing with supply chain management. Time matters. Price matters.

if you get in stock XYZ at 100 and it doesn't go anywhere for a month and then goes up, guess what. You were WRONG! Anyone, I mean anyone can be right if given enough time. Without the time variable everyone on ET is a paper billionaire. Time is what makes trading hard. It's the variable that has to be "optimized". Get the time wrong and chances are, you have yourself a loser.

So my experience has shown me that most guys who play around with directional option positions are not really "good directional" traders who are getting hosed by the greeks, they actually are bad traders. This is just my experience.
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This is a great exposition on time factor of trading options or any other assets. Great words, Thanks

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What am I missing?

TskTsk

jimmyjazz

TskTsk

stwh