Years ago I was an Optionetics student, too. Spent $3,000 and learned
very little about option pricing or the greeks. They showed me a number
of great ways to spend $20,000 to $30,000 with them, however.
Christopher Smith
TheOptionClub.com
--- In OptionClub@yahoogroups.com, "PLA" <optionzz@...> wrote:
>
> Irshad,
>
>
>
> Regarding a good source for understanding and applying the Greeks, but
more
> importantly, all about options and how to trade them, I recommend
> Optionetics.com. I had my original training with them 10 years ago,
and
> have repeated classes (for free) a number of times, as well as
attended
> their annual OASIS three day function for updates. Best money I ever
spent.
> Finally, Optionetics has a POWERFUL analytical website (Platinum Pro),
with
> full historical options data, and amazing search and trade analysis
> tools.unlike anything I've seen anywhere else. It was created by
> professional traders for professional traders (at least that's what
they
> say!) You can try it for free for two weeks, but be prepared to drink
from
> a firehose! Of course, there are lots of sources and I use them too.
>
>
>
> Pete
>
>
>
> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com]
On
> Behalf Of TheOptionClub
> Sent: Thursday, July 08, 2010 12:38 PM
> To: OptionClub@yahoogroups.com
> Subject: [TheOptionClub.com] Re: Greeks - Chain Reaction
>
>
>
>
>
> Irshad,
>
> You have to be careful about assumption like those you are proposing.
> Always keep in mind that the greeks are outputs from an options
pricing
> formula, but that option prices are not determined by option pricing
> formulas. Option prices are dictated by the laws of supply and demand
and
> the option pricing formulas simply try to explain why the prices are
what
> they are. That explanation always comes down to a measure of implied
> volatility.
>
> In general, we do expect to see implied volatility ease when the
market
> moves higher but this is not always the case. Maintaining delta
neutrality
> addresses the directional risk present in your portfolio, but often it
seems
> that traders lose sight of the real goal. In my book, the goal is not
to
> reduce my delta to near zero. Rather, my goal is to manage risk.
Those
> greeks help me assess where the risks lie and provide me with some
guidance
> as to what I might do to address unacceptable risks.
>
> The danger I find is that as traders begin learning about the greeks
they
> lose sight of the bigger picture. Option prices are going to respond
to the
> demand present in the market. That demand is a reflection of the
relative
> expectation of the marketplace for future price movement. When the
market
> grows concerned that equity prices are susceptible to significant
price
> movements of 3SD or more you will see option prices rise. This is
reflected
> in an inflated implied volatility. As the concern of the market eases
the
> demand for options subsides, which is in turn reflected by a lower
implied
> volatility.
>
> Implied volatility only effects the extrinsic or "time value" of an
option.
> So, if the implied volatility rises the option's time value has
increased.
> The expiration date of that option remains unchanged, however. With
the
> knowledge that options lose all of their time value as of their
expiration
> date we know that the relative "time decay" has to increase for the
option's
> time value to be reduced to zero by that fixed date of expiration. Of
> course, this is all mathematical theory and imperfect at that because
even
> with a large theta an option's implied volatility can continue to rise
and
> inflate the value of an option's time value even as expiration
approaches.
>
> So, the answer to your first question is that your assumption is not
> necessarily correct. It is true that when you see market prices
trending
> higher you will often see implied volatility subside. With that lower
> implied volatility you will necessarily see less time value in your
option
> and, therefore, a smaller decay rate. Your option's vega is a
measure of
> it's sensitivity to changes in the implied volatility. While
potential
> price collapse is often a cause for increased implied volatility other
> factors can inject uncertainty and concern into the market. Earnings
or FDA
> announcements are prime examples. Such events can inject concern into
the
> minds of investors who in turn seek to protect their equity positions
even
> if prices have been trending higher. This increase in demand for
options
> will result in a rise in the option's pricing and, consequently, a
rise in
> the implied volatility figures returned by an option pricing model.
>
> In other words, even though there is often a correlation between price
> movement of the underlying and implied volatility, there is no direct
link.
> Assuming that there is a direct link is an incorrect assumption.
Where you
> will find a direct linkage is between implied volatility and the price
of
> the option. In fact, many who really know this stuff will tell you
that
> implied volatility IS the price of the option.
>
> I don't have any one book or on-line resource to suggest. In my
experience,
> learning this stuff requires a bit of struggle. You'll just need to
keep
> working at it until your mind wraps around it and grasps it. There
are many
> resources on-line, but quite frankly I think this message board is as
good
> as any of them. I might also shamelessly plug the Trading Room
> <http://member.theoptionclub.com> , but the real deciding factor in
> achieving a good understanding is persistence.
>
> Christopher Smith
> TheOptionClub.com
>
>
>
> --- In OptionClub@yahoogroups.com, Mohamed Irshadullah mirshadu@
wrote:
> >
> > Hello Option Gurus,
> >
> > Need your help in understanding and setting up build block for
delta
> nuetral position. Based on the three standalone option theories
> >
> > 1) When underlying (price) goes up, Volatility goes down
> > 2) When Volatility goes down, Gamma (net, long or short) goes up
> > 3) When Volatility goes up, Positive Theta goes up
> >
> > Question #1, Is it correct to assume that, if price go up, then vega
(net)
> & theta (positive) goes down and gamma (net) goes up and vice versa,
when
> prices go down?
> > Question #2, Is there any recommended book or online resource that
can
> help in understanding & maintaining delta neutral position either on a
> periodic basis or on occurance of an event like x% movement in
underlying or
> change in volatility?
> >
> >
> > Appreciate your response in advance, Happy trading!!
> >
> > Best
> > - Irshad
> >
>
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