Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Larry1234

Usefulness of Option Greeks

Recommended Posts

Hello,

 

This thread has been created to understand the Option Greeks. I would like to say that we, as an individual trader, least focus on the importance of the option greeks before taking a position in options. Let us discuss about the option greeks and its importance -

 

Basically there are five option greeks. They are -

 

(1) Delta - It measures an options sensitivity (i.e. option price) to changes in the price of the underlying assets.

 

(2) Gamma - It measures the delta's sensitivity to changes in the price of the underlying assets.

 

(3) Vega - It measures an option's sensitivity to changes in the volatility of the underlying assets.

 

(4) Theta - It measures an option's sensitivity to time decay.

 

(5) Rho - It measures an option's sensitivity to changes in the risk free interest rate.

 

These five option greeks are really plays an important role in trading decision making.

 

I hope this will help. :)

Share this post


Link to post
Share on other sites

This thread is created for those who wants to post any thing related to option greeks whether their understanding and their experience with the option greeks .....

 

Hello,

 

This thread has been created to understand the Option Greeks. I would like to say that we, as an individual trader, least focus on the importance of the option greeks before taking a position in options. Let us discuss about the option greeks and its importance -

 

Basically there are five option greeks. They are -

 

(1) Delta - It measures an options sensitivity (i.e. option price) to changes in the price of the underlying assets.

 

(2) Gamma - It measures the delta's sensitivity to changes in the price of the underlying assets.

 

(3) Vega - It measures an option's sensitivity to changes in the volatility of the underlying assets.

 

(4) Theta - It measures an option's sensitivity to time decay.

 

(5) Rho - It measures an option's sensitivity to changes in the risk free interest rate.

 

These five option greeks are really plays an important role in trading decision making.

 

I hope this will help. :)

Share this post


Link to post
Share on other sites

Hey all,

 

Kindly let me know where can we get the data regarding option greeks ? I mean the should be readily available and it should be updated one.

 

I believe option greeks really helps in taking a decision. How people are using this to achieve max return ?

 

Need input..

Share this post


Link to post
Share on other sites

I guess none of the member is interested to discuss about option greeks but I would say these option greeks really play a vital role in option trading and helps in creating effective option strategies.

 

Lets us discuss about these greeks in this thread more.

Share this post


Link to post
Share on other sites

what do you want to discuss?

 

All they are is a measure of what characteristics (sensitivities) an option has at any particular time.

The best use of them is in combining multiple options and underlyings in order to get to a single measure OR combined portfolio sensitivities via the Greeks.

 

Of course they play a vital role in understanding the options, but not sure exactly what you want to discuss about them that cant be easily found in any text book.....or better yet in an option simulator that has moveable variables in order to see how the options might move over time, price etc.....There is not much to discuss really unless you have specific questions.

Do you want to talk about them and their applicability to trading? If so how so.....

Share this post


Link to post
Share on other sites

We all know that all greeks are basically how sensitive is option price w.r.t to Underlying assets value, Risk free rate, time decay and volatility.

 

I just wanted to know whether the traders are actually using them to formulate trading strategies ? If yes, then how ?

 

e.g. always sell options with high theta compared to low theta ?

Share this post


Link to post
Share on other sites
We all know that all greeks are basically how sensitive is option price w.r.t to Underlying assets value, Risk free rate, time decay and volatility.

 

I just wanted to know whether the traders are actually using them to formulate trading strategies ? If yes, then how ?

 

e.g. always sell options with high theta compared to low theta ?

 

Yes - some traders sell options that have low amounts of theta - these are usually the cheap out of the money puts (or calls) They usually do this until they blow up - but its not usually determnied by the theta - but by the amount OTM they are.

Some traders make markets in options around a theoretical fair value depending on what the historical and implied volatility relationship is.

Some traders sell options over a portfolio of stocks looking for the best call away yield at the time

Some traders buy or sell volatility thinking they want a directional move

Some traders will do spreads allowing them to take a view on interest rates, or dividiend amounts

some traders might always use spread strategies across months or strikes to implement a view...

 

IMHO - all of these are not reliant on the greeks, they are more reliant on the over all strategy and THEN the Greeks will show you your position/exposure. Or the Greeks might show you the best relative way to implement your strategy.

 

(Its a bit of a chicken and egg argument really )

Share this post


Link to post
Share on other sites

All else being equal, with the help of greeks, we can easily formulate better option strategies and can make arbitrage profits.

 

Yes - some traders sell options that have low amounts of theta - these are usually the cheap out of the money puts (or calls) They usually do this until they blow up - but its not usually determnied by the theta - but by the amount OTM they are.

Some traders make markets in options around a theoretical fair value depending on what the historical and implied volatility relationship is.

Some traders sell options over a portfolio of stocks looking for the best call away yield at the time

Some traders buy or sell volatility thinking they want a directional move

Some traders will do spreads allowing them to take a view on interest rates, or dividiend amounts

some traders might always use spread strategies across months or strikes to implement a view...

 

IMHO - all of these are not reliant on the greeks, they are more reliant on the over all strategy and THEN the Greeks will show you your position/exposure. Or the Greeks might show you the best relative way to implement your strategy.

 

(Its a bit of a chicken and egg argument really )

Share this post


Link to post
Share on other sites
All else being equal, with the help of greeks, we can easily formulate better option strategies and can make arbitrage profits.

 

really.... how?

 

You might be able to use the Greeks to compare options available to implement a strategy, but how are you using the Greeks to formulate strategies.

Its a bit like a cars dashboard - you need to be driving for them to be worth anything....otherwise its all theoretical.

 

For the discussion - how do you easily propose to use the Greeks to make arbitrage profits?

Share this post


Link to post
Share on other sites

Portfolio managers use the Greeks in order to better hedge their portfolio and remove some risk factors from their position. For traders calculating the greeks can give an idea if someone should open a position or not.

Share this post


Link to post
Share on other sites
Portfolio managers use the Greeks in order to better hedge their portfolio and remove some risk factors from their position. For traders calculating the greeks can give an idea if someone should open a position or not.

 

I agree with you and would like to add more.

 

Option Greeks allow option traders to objectively calculate changes in the value of the option contracts in their portfolio with changes in the factors that affects the value of stock options. Options greeks help traders to hedge their portfolio or to construct positions with specific risk/reward profiles. So the importance of Option Greeks is priceless in options trading.

 

For the amateur trader, knowing the delta of their options position is the most important as it gives them an indication of how their option's value will change with movements in the underlying stock price - all other variables remaining the same. Knowing your time decay i.e. theta gives an indication of how much time value your options trading position is losing each day - all other variables remaining the same.

 

Apart from this, Professionals also use the Option Greeks to measure exactly how much they need to hedge their portfolio and to surgically remove specific risk factors from their portfolio. The Option Greeks also enable the measurement of how much risk the portfolio is exposed to, and where that risk lies.

Share this post


Link to post
Share on other sites

knowing how to read the dashboard of a car, if you dont know how to drive is not going to help much......

 

you still have not explained how you think option Greeks will make you money, develop a strategy or make arbitrage profits.....all you are doing is measuring a position.

there is a big difference

 

You are just rattling off generic ideas about hedging a position, reducing risk and managing an existing position.....and if you have ever traded an option book you will know that the greeks move constantly, and just because you think your Greeks show a theoretical position you cant forget that the market might not give you the liquidity to represent that in real life (remember the mark to market issues many had in 2008?).....none of this is going to help you unless you already have a strategy.

Share this post


Link to post
Share on other sites
knowing how to read the dashboard of a car, if you dont know how to drive is not going to help much......

 

you still have not explained how you think option Greeks will make you money, develop a strategy or make arbitrage profits.....all you are doing is measuring a position.

there is a big difference

 

You are just rattling off generic ideas about hedging a position, reducing risk and managing an existing position.....and if you have ever traded an option book you will know that the greeks move constantly, and just because you think your Greeks show a theoretical position you cant forget that the market might not give you the liquidity to represent that in real life (remember the mark to market issues many had in 2008?).....none of this is going to help you unless you already have a strategy.

 

What I said about option greeks is theoretical. As you rightly point out that the Greeks move constantly, so it really help us in making strategies and managing our position by reducing the exposure.

 

If you don't know how to read the dashboard of a car and you are driving the car then I think you are putting yourself into danger zone. Similarly, trading options without the knowledge of the factors which affects option pricing is a similar to one (like a car example). That is why more than 80% of the traders loose money to experts.

Share this post


Link to post
Share on other sites
the Greeks move constantly, so it really help us in making strategies and managing our position by reducing the exposure.

 

 

Maybe I am being slightly pedantic here and the reason is that we agree the Greeks can help you measure your position and exposure......but if you keep insisting on how they will help you make your strategy then I would like to know how you think this is done?

 

To me, I have never seen anyone base a strategy purely off the Greeks - the strategy has a basis elsewhere -

eg; buying volatility for a volatility move up, a directional move or to trade the gamma.

selling vol as part of an overall portfolio type insurance yield enhancer

selling/buying options for pure directional plays

 

The Greeks can help you rank the relative attractiveness of the options to trade, or can help assess the timing but I am still not sure of the strategy.

 

(I am being pendantic as too often threads get sidetracked with incorrect/misleading/ misunderstood/confusing jargon IMHO)

Share this post


Link to post
Share on other sites

Knowing the Greeks and applying them to your options investing strategies can greatly help your performance but the most important is that you have to choose the right strategy and open the right position

Share this post


Link to post
Share on other sites
Knowing the Greeks and applying them to your options investing strategies can greatly help your performance but the most important is that you have to choose the right strategy and open the right position

 

I agree that using Greeks in options helps us in improving the performance but we know that Greeks are changing continuously that is why it is really difficult to apply them in decision making.

Share this post


Link to post
Share on other sites
Maybe I am being slightly pedantic here and the reason is that we agree the Greeks can help you measure your position and exposure......but if you keep insisting on how they will help you make your strategy then I would like to know how you think this is done?

 

To me, I have never seen anyone base a strategy purely off the Greeks - the strategy has a basis elsewhere -

eg; buying volatility for a volatility move up, a directional move or to trade the gamma.

selling vol as part of an overall portfolio type insurance yield enhancer

selling/buying options for pure directional plays

 

The Greeks can help you rank the relative attractiveness of the options to trade, or can help assess the timing but I am still not sure of the strategy.

 

(I am being pendantic as too often threads get sidetracked with incorrect/misleading/ misunderstood/confusing jargon IMHO)

 

Generally Option greeks are used by Portfolio managers while re balancing the portfolio. Apart from this, they use this to make their portfolio delta and gamma free.

Share this post


Link to post
Share on other sites

Greeks in drag - now you are worrying me Mit - even if we saw you we might not want to recognize you if you get all dolled up in that sort of outfit.....whoops, too many thoughts - you aint seen me right? ;)

 

I am just going to disappear like a Cyprus bank account - look into my eyes, look into my eyes not around the eyes look into my eyes - nothing to see here - no Greeks no option strategy, no more explanations.

Share this post


Link to post
Share on other sites
Actually the Greeks are a drag they should just opt out of the Euro and the Cypriots too.In fact most of these PIGS should get off the pot and learn to piss on their own 2 feet.The longest running train wreck i've ever..... ah...options..:(...i uh, thought you were talking about the Eurozone....you ain't seen me..right?;)

 

 

This thread is created to discuss Options Greeks (Delta, Gamma, Theta, Rho & Vega) not the Greeks in Eurozone.

Share this post


Link to post
Share on other sites
:shocked:

You're kiddin'..who would have thought.How dumber and dumber of me,all i needed to do was read a few posts and i would have realized that.

You should go on mastermind,specialist topic stating the bleeding obvious.And after that round Larry,you scored full marks (applause,lights go up)

:applaud:

And there i was,thinking that actually this thread was all about finding out who knows what the hell they're talking about and who hasn't got a clue.

On that basis i declare this thread a success.:cinema:

:hmmmm:

Now,where's that gamma ray gun? Ineed to bore a hole in someones head so i can transplant a sense of humour in there.

 

Thank you. Your comments are invited to make the thread more successful. ;)

Share this post


Link to post
Share on other sites

the only thing that is going to keep you from going for too large a gain is a good solid trading plan, that you have disciplined your self to follow. The greeks can't tell you anything about that.

L

Share this post


Link to post
Share on other sites
The greeks can't tell you anything about that.

L

 

Greeks are generally used by Portfolio manager, not by retails traders. Greeks are really useful in mitigating the risk of the portfolio. One of the strategy is Delta Hedge Strategy, which is very common and popular among them.

Share this post


Link to post
Share on other sites

Friends, there seems to be a lot of confusion on this post on "Option Greeks". Let me simply say, if you're trading Options without looking at the Greeks, you're flying an airplane without any instruments..Seriously.

 

In the interests of clearing up (most of) your doubts on this subject, here is a course that includes an introductory but very detailed section on Option Greeks. This link will give you free access to my course.

 

Enjoy and DON'T TRADE OPTIONS WITHOUT LOOKING AT THE GREEKS.

 

Best

 

Hari

Share this post


Link to post
Share on other sites
Friends, there seems to be a lot of confusion on this post on "Option Greeks". Let me simply say, if you're trading Options without looking at the Greeks, you're flying an airplane without any instruments..Seriously.

 

In the interests of clearing up (most of) your doubts on this subject, here is a course that includes an introductory but very detailed section on Option Greeks. This link will give you free access to my course.

 

Enjoy and DON'T TRADE OPTIONS WITHOUT LOOKING AT THE GREEKS.

 

Best

 

Hari

 

Do you think that retail investors use option greeks ?

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • HLF Herbalife stock, watch for a bull flag breakout above 9.02 at https://stockconsultant.com/?HLF
    • Date: 1st April 2025.   Will Gold’s Rally Hold Strong as New Trade Tariffs Take Effect Tomorrow?   Gold continues to increase in value for a sixth consecutive day and is trading more than 17% higher in 2025. Amid fear of higher inflation, a recession and the tariffs war escalating investors continue to invest into Gold pushing demand higher. The trade policy from April 2nd onwards continues to be a key factor for the whole market. Can Gold maintain its upward trend? Trade Policy From Tomorrow Onwards Starting as soon as tomorrow, a 25% tariff will be imposed on all passenger cars imported into the United States. While this White House policy is anticipated to negatively affect European industrial performance, it will also lead to higher transportation and maintenance costs for everyday American taxpayers. The negative impact expected on both the EU and US is one of the reasons investors continue to buy Gold. Additionally, last month, President Donald Trump announced reciprocal sanctions against any trade partners that impose import restrictions on US goods. Furthermore, tariffs on products from Canada and the EU could increase even more if they attempt to coordinate a response. Overall, investors continue to worry that new trade barriers will prompt retaliatory measures, particularly from China, the Eurozone, and Japan. Any retaliation is likely to escalate the trade conflict and prompt another reaction from the US. Experts at Goldman Sachs and other investment banks warn that this will lead to rising inflation and unemployment. They also caution that it could effectively halt economic growth in the US.   XAUUSD 1-Hour Chart   The Weakness In The US Dollar Another factor which is allowing the price of XAUUSD to increase in value is the US Dollar which has been unable to maintain any bullish momentum. Despite last week’s Core PCE Price Index rising to its highest level since February 2024, the US Dollar has been unable to see any significant rise in value. Due to the US Dollar and Gold's inverse correlation, the price of Gold is benefiting from the Dollar weakness. Investors worry that new trade barriers will prompt retaliatory measures from China, the Eurozone, and Japan, potentially escalating the conflict. Experts at The Goldman Sachs Group Inc. believe that such actions by the US administration will drive rising inflation and unemployment while effectively halting economic growth in the country. Can Gold Maintain Momentum? When it comes to technical analysis, the price of Gold is not trading at a price where oscillators are indicating the instrument is overbought. The Relative Strength Index currently trades at 68.88, outside of the overbought area, since Gold’s price fell 0.65% during this morning’s session. However, even with this decline, the price still remains 0.40% higher than the day’s open price. In terms of fundamental analysis, there continues to be plenty of factors indicating the price could continue to rise. However, the price movement of the week will also partially depend on the employment data from the US. The US is due to release the JOLTS Job Vacancies for February this afternoon, the ADP Non-Farm Employment Change tomorrow, and the NFP Change and Unemployment Rate on Friday. If all data reads higher than expectations, investors may look to sell to lock in profits at the high price. Key Takeaway Points: Gold’s Rally Continues – Up 17% in 2025 as investors seek safety from inflation, recession fears, and trade tensions. Trade War Impact – New US tariffs and potential retaliation from China, the EU, and Japan drive uncertainty, boosting Gold demand. Weak US Dollar – The Dollar’s struggle supports Gold’s rise due to their inverse correlation. Gold’s Outlook – Uptrend may continue, but US jobs data could trigger profit-taking. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Date: 31st March 2025.   Trump Confirms Tariffs on All Countries, Sending Stocks Lower.   The NASDAQ continues to trade lower due to the US confirming the latest tariffs will be on all countries. In addition to this, bearish volatility also is largely due to the higher inflation data from Friday. The NASDAQ declines to its lowest price since September 11th 2024. Core PCE Price Index - Inflation Increases Again! The PCE Price Index read 2.5% aligning with expert forecasts not triggering any alarm bells. However, the Core PCE Price Index rose from 0.3% to 0.4% MoM and from 2.7% to 2.8% YoY, signalling growing inflationary pressure. This increases the likelihood that the Federal Reserve will maintain elevated interest rates for an extended period. The NASDAQ fell 2.60% due to the higher inflation reading which is known to pressure the stock market due to pressure on consumer demand and a more hawkish Federal Reserve. Boston Fed President Susan Collins recently commented that tariffs could drive up inflation, though the long-term impact remains uncertain. She told journalists that a short-term spike is the most probable outcome but believes the current pause in monetary policy adjustments is appropriate given the prevailing uncertainties. Although, certain investment banks such as JP Morgan actually believe the Federal Reserve will be forced into cutting rates. This is due to expectations that the economy will struggle under the new trade policy. For example, JP Morgan expects the Federal Reserve to delay rate cuts but will quickly cut towards the end of 2025. Market Risk Appetite Takes a Hit! A big factor for the day is the drop in the risk appetite of investors. This can be seen from the VIX which is up almost 6%, Gold which is trading 1.30% higher and the Japanese Yen which is the day’s best performing currency. Most safe haven assets, bar the US Dollar, increase in value. It is also worth noting that all indices are decreasing in value during this morning's Asian session with the Nikkei225 and NASDAQ witnessing the strongest decline. Previously the stock market rose in value as investors heard rumours that tariffs would only be on certain countries. This bullish swing occurred between March 14th and 25th. Over the weekend, President Donald Trump indicated that the upcoming tariffs would apply to all countries, not just those with the largest trade imbalances with the US. NASDAQ - Technical Analysis In terms of technical analysis, the NASDAQ continues to obtain indications that sellers control the price action. The price opens on a bearish price gap measuring 0.30% and trades below all Moving Averages on all timeframes. The NASDAQ also trades below the VWAP and almost 100% of the most influential components (stocks) are declining in value.     The next significant support level is at $18,313, and the resistance level stands at $20,367.95. Key Takeaway Points: NASDAQ falls to its lowest since September 2024 as the US confirms tariffs on all countries, adding to inflation concerns. Core PCE inflation rises to 0.4% MoM and 2.8% YoY, increasing the likelihood of prolonged high interest rates. Investor risk appetite drops as VIX jumps 6%, gold gains 1.3%, and safe-haven assets outperform. NASDAQ shows strong bearish momentum, trading below key technical levels with support at $18,313 and resistance at $20,367.95. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • PM Philip Morris stock, top of range breakout at https://stockconsultant.com/?PM
    • EXC Exelon stock, nice range breakout at https://stockconsultant.com/?EXC
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.