Wednesday, July 7, 2010

RE: [TheOptionClub.com] Greeks - Chain Reaction

 

Irshad

I don't consider myself a guru, but I do traded direction-neutral.  As my wife will tell you: I have no sense of direction.

I think you should read Dan Passarelli's "Trading Option Greeks" to get a better sense of these "theories".  He has a lot to say about trading volatility, and trading vol and theta are what you are doing when you don't have an opinion on direction.

At the same time, I think you should give up any notion of a "cook book" method, which is the implication of your second point.  Maybe that is not what you mean, in which case forgive my error.

If you are interested in the mechanics of doing what you want to do - and which I like doing (most months) - I'd suggest reviewing Dan Sheridan's webcasts on the CBOE site that cover Income Trading, and condors, calendars, double diags, double calendars and ATM butterflies.  Then I think you will conclude that it is more like playing soccer than cooking a stew.   There is a lot that can be written down, rules etc. etc., but to win the game you need to develop skills.

While you are doing that, I'll be practicing my craft, as Dan would say, and slowly climbing towards guruhood!!

Bill


To: OptionClub@yahoogroups.com
From: mirshadu@yahoo.com
Date: Tue, 6 Jul 2010 11:19:37 -0700
Subject: [TheOptionClub.com] Greeks - Chain Reaction

 

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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