Is it just all Greek?

[wal]

Hi all.

The greeks! Incredibly complicated to learn (unless one is a mathematical savant) and to the noob, seemingly irrelevant.

Why would anyone go to the trouble to learn the greeks and how would this knowledge impact ones trading?

Is this piece of advise valid?

They are simply numbers, and people interpret them differently. If a share is going up, it's going up, regardless of what the greeks say.

Tim's Trading Tips:

If a share is going up,
Consider buying calls or consider selling puts.

If a share is going down,
Consider buying puts or consider selling calls.

What would options traders say to this?

TIA

Cheers

 

[MasoMinos]

Your mate Tim had the right idea, simplistic, but right.

What he didn't say was when they're going sideways, sell PUTS or CALLS.

And that it would be a good idea to be slightly ahead of the game in when you bought/sold and which strike and which month. That's were a basic knowledge of the Greeks comes in useful and it doesn't take savant levels to acquire.

He also didn't mention that the majority of options pricing, vanilla and exotics is still based on the largely now inappropriate Bachelier models developed on mathematical 'proofs' from the 1900s which now no longer hold. You'll hear talk of fat tails and standard deviation, but the 'standard' is rarely achieved. You can still get away with it as most are still pricing way wrong. That's were a more detailed study of the Greeks and mutlifractals will serve you well if you wish to take advantage of other options sellers/buyers.

 

[wal]

But...

What of vega risk?

What of using greeks... delta/gamma for selection of apprpriate strike, expiry and position size...being aware of position delta etc etc?

Most noobs wonder how they lost money on the call they bought when the stock went up, blame it on theta and decide to become writers....and walk into a steam roller!

I know of an "education" organisation thay actively DIScourages people from even looking at them.

Are there long term successful options players who do not use greeks in their trading?

I don't know any, but was wondering if they exist? ..cause I didn't become consistently profitable till I twigged!!

Cheers

 

[A Dashing Blade]

He also didn't mention that the majority of options pricing, vanilla and exotics is still based on the largely now inappropriate Bachelier models developed on mathematical 'proofs' from the 1900s which now no longer hold.

Er . . . so they once DID hold but don't anymore? . . . . hmmmmm

You'll hear talk of fat tails and standard deviation, but the 'standard' is rarely achieved.

Er . . . any distribution, however kurtotic has a standard distribution.

You can still get away with it as most are still pricing way wrong.

Which implies that you know the "correct" way to price an option?

That's were a more detailed study of the Greeks and mutlifractals will serve you well if you wish to take advantage of other options sellers/buyers.

I'd be very intersted in understanding the link between fractal analysis and differentiation with regard to option pricing!

At the end of the day Wal, if you have even a passing interest in option trading, you'll be wise to get your head the basics.

 

[Profitaker]

Wal

It's not a question of learning "the greeks", it's a question of learning how options are priced. Learnt that, and you learn the greeks for free. Is it important to learn ? No, it's absolutely vital ! And it's not that difficult.

MasoMinos

Interesting points. Particularly your dismissal of the normal distribution, even though assymetry (Skew) and fat tails (Kurtosis) can be accounted for. I'm sure you'll offer an alternative when you respond to to DB's post ?

 

[A Dashing Blade]

MasoMinos

Interesting points. Particularly your dismissal of the normal distribution, even though assymetry (Skew) and fat tails (Kurtosis) can be accounted for. I'm sure you'll offer an alternative when you respond to to DB's post ?

Don't get me wrong, I'm all for dismissing normal distributions!

 

[Profitaker]

Don't get me wrong, I'm all for dismissing normal distributions!

Me too, but nobody has come up with a viable alternative. Maybe this could be it !

 

[pietro]

This might help

Hi, this book will help you so much, if your having trouble understanding the Greek's and options in general, it also talks a little about different types of option strategies.

the book is call Options, Futures and other Derivatives, its by a chap called John C. Hull and can be purchased online.

hope this helps.

Pietro

 

[MasoMinos]

wal I'm confused by your response. Your initial post appeared to be asking a question from the viewpoint of someone new to trading options. You then subsequently tell us your are consistently profitable. Then why ask? Whatever you're doing is obviously the thing to be doing.

a dashing blade, it might be helpful if you constructed your posts in a manner which allows an easier response. You're falling into the trap that thank God, many do, of assuming a basically symmetrical bell-shaped curve with the standard deviations (68%, 95%, 98% etc). There is no market data to support this hypothesis. And that's all it is, an hypothesis. Market data going back even to Bachelier's time does not support this hypothesis. It's always been wrong. But it became fashionable and utilised in virtually all the major pricing models. It still is in most. If you are genuinely interested in multifractal analysis you'll need to do some research. My own utilisation of these techniques has been looking for the very real divergence between standard pricing models' expectations of abnormal price/value changes and the reality of 'abnormal' price changes frequency. You get for more price change data outliers than justify them being termed as such.

Final Note: This is the last post I will make on this site. I reported a strange occurrence recently where on many occasions when attempting to post of suddenly having my permissions to do so removed and requested to log in again right at the end of the post submission process. While it would be easy to suggest this may be as a result of my posts on other threads related to the running and administration of this site I am sure the response from one of the moderators that it was just a coincidence is absolutely correct. Whatever, I am not prepared to waste time preparing posts to have either games played or defective systems inconvenience me to redraft and repost every time.

 

[A Dashing Blade]

a dashing blade, it might be helpful if you constructed your posts in a manner which allows an easier response. You're falling into the trap that thank God, many do, of assuming a basically symmetrical bell-shaped curve with the standard deviations (68%, 95%, 98% etc). There is no market data to support this hypothesis.

1) Apologies.
2) No I'm not (see earlier post)
3) Absolutely agree

Sorry to hear you've had problems posting MM, to be honest, I think you're erring to the paranoid if you suspect the mods of spiking your priviliges!

 

[TheMoneyMachine]

Final Note: This is the last post I will make on this site. I reported a strange occurrence recently where on many occasions when attempting to post of suddenly having my permissions to do so removed and requested to log in again right at the end of the post submission process. While it would be easy to suggest this may be as a result of my posts on other threads related to the running and administration of this site I am sure the response from one of the moderators that it was just a coincidence is absolutely correct. Whatever, I am not prepared to waste time preparing posts to have either games played or defective systems inconvenience me to redraft and repost every time.

Thats a shame MasoMinos, your posts have been very informative.

Regards

TMM

 

[wal]

Maso

Sorry if I appeared to be a beginner. My question was to stimulate some discussion on this topic, as many seem to avtively shun this knowledge... to their ultiment detriment.

Profittaker,

I must of learned things the wrong way round, as I've learned greeks, but not the mathematics of how they're priced. Where could one learn this?

Cheers

 

[Directional]

Maso - sounds like possibly a cookie blocker or firewall restriction preventing your login cookie from communicating with the site to verify your ID on post submission - I had a similar problem a while back that I resolved by tweaking my firewall settings.

Unless you are trying to post to a closed thread or something, that comes up with a similar permissions message.

 

[Profitaker]

My own utilisation of these techniques has been looking for the very real divergence between standard pricing models' expectations of abnormal price/value changes and the reality of 'abnormal' price changes frequency. You get for more price change data outliers than justify them being termed as such.

I think you're describing the Kurtosis of a distribution here.

I am not prepared to waste time preparing posts to have either games played or defective systems inconvenience me to redraft and repost every time.

Never heard that one before as a reason for not longer posting. You could always draft a post in word before posting...delete word after it gets posted, no ?