Thursday, July 29, 2010

[TheOptionClub.com] Re: Translating from the Greek

 


I assume these conventions arise from trading half a century ago and have evolved up to the point of the trading floor being vacated in favor of the keyboard. Traders would need to be able to work in simple analog relationships, adding and subtracting deltas. I think it's easier to make quick arithmetic relative to price movement of the underlying rather than compute percentages (which after all, is just another layer of abstraction.) And once you want to make beta weighted risk adjustments for an inventory of positions, percentages would be trouble.

As a matter of convention, I think percentage expressions are used in terms of likelihood, not risk.

--- In OptionClub@yahoogroups.com, "WilliamF" <wnfletcher@...> wrote:
>
> Can somebody tell me why traders don't use percentages instead of Greeks when dealing with individual positions - or maybe translate the Greeks into percentages of the underlying or the investment. For example, if I have an iron condor with a margin of $1,600, isn't it more informative to express the delta as a percentage of this margin, rather than as a dollar number?
>

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