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Greeks

The Greeks in Option Trading!The Greeks are mathematical measures used in options trading to assess and quantify different factors that impact the price and behavior of options. 📌 VEGA: Vega measures how much an option's price will change in response to a 1% change in implied volatility. Implied volatility reflects the market's expectation of the future movement of the underlying security. When implied volatility is high, options tend to be more expensive, while low implied volatility makes options cheaper. Vega has a greater impact on options with longer expiration dates. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌 GAMMA: Gamma represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For example, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌 THETA: Theta represents the theoretical daily decay of an option's price, assuming all other factors remain constant. Options gradually lose value over time due to time value decay. The decay is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially near-the-money ones, tend to have higher Theta because there is greater urgency for the underlying asset to move favorably before expiration. Theta is negative for long positions (options purchased) and positive for short positions (options sold), regardless of whether it's a call or a put. 📌 RHO: Rho measures an option's sensitivity to changes in the risk-free interest rate. It represents the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌 DELTA: Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, with 0 indicating minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security.
AMEX:SPY
by A1TradingHub
⚖️OPTIONS TRADING: What are the Greeks?The Greeks are a set of mathematical measures used in options trading to assess and quantify various factors that influence the price and behavior of options. 📌 VEGA : Vega is a measure of how much an option's premium will change in response to a 1% change in implied volatility. Implied volatility represents the market's expectation of the underlying security's future movement. When implied volatility is high, options tend to be more expensive, and when it is low, options are cheaper. Vega is particularly influential for options with longer expiration dates, as volatility has a greater impact on their prices. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Essentially, Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌GAMMA Gamma, represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For instance, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌THETA Theta represents the theoretical daily decay of an option's premium, assuming all other factors remain constant. As time passes, options gradually lose value, and this loss is known as time value decay. The decay of time value is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially those near-the-money, tend to have higher Theta because there is greater urgency for the underlying asset to move in a favorable direction before expiration. Theta is negative for long (purchased) positions and positive for short (sold) positions, regardless of whether the option is a call or a put. 📌RHO Rho measures an option's sensitivity to changes in the risk-free interest rate and is expressed as the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌DELTA Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, where 0 indicates minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Education
by QuantVue
9
Script to track put collar spreadsFor all you weekend script warriors out there. I'm working on a new script to track the greeks for put spread collars like JHEQX My thought is to publish a script that can automate tracking of these massive collars and generate greeks, strikes and future volatility predictions. I want to create trading strategies based on selling while negative gamma and buying while positive gamma I have Black Scholes and implied volatility working close to my reflect my brokers. I will publish the completed script when I get iv working properly. There needs to be some public light shed on these strategies. Why? These strategies will continue to drain all liquidity from the markets until there is a liquidity crisis. You're Crazy. No Really, Why? Let me break it down... This strategy is 1 of 3 by a single prime broker. My guess is there are a lot of other big hedge funds doing a very similar strategy. Every 3 months, the strategy is reset. Every 3 months, a big liquidity withdrawal is being made without anyone even noticing. Market liquidity pays for the premium of this strategy. O'Rly? This strategy is insurance for 20 billion in assets. The premium for the long put contracts on 20% downside for 20 billion is ~550 million dollars. The problem. ~550 million in credit sold by market makers (dealers) with no intent of taking on the risk. Market above the short call, it's absorbing QE. Market below long put, 10-20% draw down in S&P 500 To see the results of this, compare what happens when the strategy resets during QE and QT. Imagine for a moment the trillions in margin and equities being used to draw income, yield and premiums from markets. IMHO, this strategy is the Credit Default Swap of 2020s The fed has no choice now except to continue raising rates with relentless QT to reduce its balance sheet. This bubble may be so big, your children's kids will be paying for it. I need to call my mom.
SP:SPX
by SPYvsGME
17
Explaining The Greeks: DELTAIn case you prefer to read the blog version of the report, it is listed below. I have included an example as well. What is DELTA? Delta is one of the four major risk measures in options trading. It measures the amount an options price is affected by a $1 price change in the underlying stock. DELTA is measure on a scale from 0.00 to 1.00 for call options, and 0.00 to -1.00 for put options. Delta is the main component in measuring leverage. This can be done by: (delta/option price)*current stock price. Remember a delta of 0.45 results in a 45 cents change in options prices, which is a $45 change in options value, with every $1 move in stock price. The leverage through this can be huge. As expiration approaches, the delta for in the money options will approach 1.00, whereas, for out of the money options, the delta will approach zero. Delta unofficially is also the probability that the option will expire in the money. EXAMPLE: CASH: $100 Current Stock Price: $25/share Call Option: Strike: 26, Cost: 0.50, DELTA: 0.80 Before expiration the price of the stock rises to $26 per share If you would have out right purchased shares, it would have costed you $100 for 4 shares. If you would have bought two call options it would have costed you $100, and you have the right to 200 shares of stock At expiration your shares, if purchased, would be worth $26 each, or a $4 P/L. At expiration your contract would be in theory worth 1.00, or $100 each, $200 P/L. We can calculate your leverage at purchase to be (0.80/0.50)*25 = 40X leverage PLEASE NOTE: The numbers listed above are extremely unrealistic numbers, I used them for simplicity's sake. PLEASE NOT: You must have sold your option prior to expiration in order to cash out on your gains.
AMEX:SPYEducation
by braydenboyko
Options Delta ExplainedI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. What is Delta? What is Delta? You see options prices are influenced by what they call the Greeks. A few of the Greeks are Delta, Gamma, and Theta. These are just three of the Greeks there are more. When you’re trading options, it is important that you know about the Greeks and what they do. For this article, we will focus on Delta, what it is, and why you should know exactly what Delta is. Then we’ll go through a specific example explaining it, and then I’ll share with you a few things that you need to know about Delta. So let’s get started. The Greeks OK, so as I mentioned, there are the option Greeks. Here are a few of them and what they tell you: 1) Delta is actually measuring the sensitivity. It’s a mouthful, but I’ll show you exactly what it means, for the option’s premium relative to the underlying asset in this article. In a nutshell, though, it basically says, how much does the option price change if the stock moves $1 to the upside or the downside? 2) Gamma is the rate of change of the Delta. 3) Theta , and Theta basically measures time decay. What Is Delta? So what is Delta? Delta is a number between 0 and 1 that measures how much the price of an option changes if the stock moves by $1. I know all of this sounds super theoretical, so let me actually give you a specific example. Now, the example that I want to use here is Microsoft MSFT when it was trading at $211.20. I want to cover different strike prices of options, because, again, options have strike prices and expirations. We are looking at the current price of this option and we will look at the new price of this option if MSFT moves by $1 from $211.20 to $212.20. When you bring up the option chain in your trading platform, in my case I use Tastyworks, the option we are using as an example is expiring on November 27th. Here, you would see there are different call options on this site with different strike prices. You would also see that they have all sorts of different Deltas. So let’s get started with the 205 that is right now trading at $7.30, and the Delta is 0.8. Remember, the Delta is 0.8 because again, the Delta is between 0 and 1. I’ll tell you about negative Delta in just a moment. The current price of the option is what we are seeing right here. We look at the last traded price, the last traded price is $6.92. So what does it mean? It means if MSFT goes up by $1 to $212.20, that the new price is $6.92 plus the Delta ($0.80). So, you see this where it’s really important that you understand Delta. Some people think that options move even more than the stock, and this is not true at all. So option prices always move less than the stock price. So the new price here of the option would then be $7.72. So this is for a strike price of 205, and this is a strike price that is so-called ITM “In The Money” because its value, its strike is less than the current price. Now let’s take a look at a strike that is at the money. Now assuming MSFT is trading at $211 we will use the 210 strike price. The 210 strike price has a Delta of 0.57, and this would be a so-called ATM “At The Money” with a Delta of 0.57. Again, it is between 0 and 1. The current price of the 210 strike here is $3.05. We are using the last traded price here. So if MSFT moves by $1 upwards, this option only moves 0.57. So this means that this option moves to $3.62. Lets cover one more example. So if we are using a strike of 215, that would be OTM “Out Of The Money,” and the Delta is 0.27. So the current price of this option is $1.06. So if the stock moves up by a dollar, this option only moves up by $0.27. Even though the stock moves up by $1, this only moves to $1.33. Things You Need To Know So let’s talk about the things you need to know. Options that are ITM have a higher Delta then options OTM. So this means that ITM options move more. Now, if you were to look back at your options chain, you see that the Delta for deep in the money options is 0.98. So this basically means that if the stock goes up by $1, the price of this option goes up by $0.98, so the deeper in the money, the closer to $1 the price will move. So options that are ITM are more expensive. This is where it’s important that you see that there’s a relationship between the Delta and the price. The higher the Delta, the higher the price, because the higher the Delta, the more it is in the money. As a rule of thumb, options ATM “At The Money” which are right where the strike price is right at the level where the current price is, are usually around 0.5. Now, all this applies to call options. Now put options have a negative Delta which is between -1 and 0. Well, the price of a put decreases if the option goes up. So the Delta for put options is all negative. Now, put options that are ATM, are usually closer to one. And options that are OTM, don’t move a whole lot. This is very important because some people just think, “Oh, my gosh, I’m buying out of the money options because they are cheap. It is so much cheaper to pay $1.6 than $6.92.” But they don’t really move a whole lot. Now here’s a really cool tip that you might not have known. The Delta is a rough estimate of the probability of the stock price closing above the strike. So here, you see with a delta of 0.8, it means that there’s an 80% probability right now that the stock will be above that strike price. If the Delta is 0.27, then that means there’s a 27% probability that the stock will be above that strike price. So I think it’s kind of cool as an options trader to know this. So the Delta is giving you a rough approximation of how likely is it that the stock will be above or below the current strike price on exploration. Now here’s the tricky part, Delta is not fixed. So the Delta changes as the price changes and here’s why. Right now, if, for example, MSFT (trading at $211) goes up to 215, the current strike price of 210 is deeper in the money therefore, then the Delta will be higher. So now you know what Delta is, how it influences the option price, and you see that this is important when you are trading options.
TVC:NDQ
by rockwelltrading