Learning the Greeks: An Expert’s Perspective
April 27, 2021
Options trading can be complex. Add in unfamiliar letters, and the novice trader may feel overwhelmed before getting started. If this sounds like you, be sure to join the Cboe Options Institute and options expert Sheldon Natenberg on May 12. Here, we cover a glimpse of what the webinar will explore.
What Are Option Greeks?
The option Greeks are sensitivity measures that indicate how much an option’s price is expected to fluctuate, given variables including the price of its underlying security, days to expiration, implied volatility, and even interest rates.
Understanding the relevance of these Greeks and how they are used to make informed decisions is critical to successful option trading. These five symbols represent powerful measurements that may help guide your trading strategies to a more predictable outcome. By understanding the basics and learning how to use these tools, you can leverage the full potential of options to trade and manage risk with confidence.
Delta Is Fundamental
The Delta of an option measures the sensitivity to changes in the price of the underlying security. This fundamental measurement can be the difference between an option expiring “in-the-money” or worthless.
Gamma Knows Delta
Using Gamma to understand the changing rate of Delta adds a nuanced understanding to your risk management tool kit. In a volatile market, any level of predictability is welcome, and Gamma enriches the foundational understanding of Delta.
Theta for Time
Theta measures the change in the option’s price as the expiration of the option approaches. Understanding how an option “decays” relative to the timeline of your strategy is one possible way to optimize profit potential and hedge against risk.
Vega Implications
The Greek Vega helps you understand how changes to the implied volatility of an underlying security impact the price and value of your option. Knowing this can help you decide if you want to take advantage of fast gains or avoid steep declines. In options trading, timing is everything and price movements matter.
Rho to Know
Rho provides insight around the risk-free rate of an underlying stock as the options strategy is implemented. Remember that options are used as much for risk management, including the long-term management of cash flows.
If this is still all Greek to you, register now for a comprehensive introduction to the Greeks as Sheldon Natenberg demystifies how to use the options Greeks in your trading strategies.
Join Cboe Options Institute for Demystifying the Option Greeks
Wednesday, May 12 at 12 p.m. ET
Options expert Sheldon Natenberg will join Cboe’s Matt Moran, Head of Index Insights, and Alok Khuntia, Senior Director, Derived Data and Analytics, for a webinar to discuss the foundation of options trading – the Greeks. Mr. Natenberg’s perspective and ability to educate in clear and concise terms is renowned and sought after by industry mainstays and innovators alike.
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The information in this article is provided for general education and information purposes only. No statements within this article should be construed as a recommendation to buy or sell a security or futures contract or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this article is available by contacting Cboe Global Markets at www.cboe.com/Contact. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of “Characteristics and Risks of Standardized Options.” Copies are available from your broker or from The Options Clearing Corporation at 125 South Franklin Street, Suite 1200, Chicago, IL 60606 or at www.theocc.com. © 2021 Cboe Exchange, Inc. All Rights Reserved.
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