vega financial This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you Option Greeks Made Easy – Delta, Gamma, Theta, & Vega Ep 199. Following along are instructions in the video below:
“This is sasha and welcome to another episode of let s talk stocks and in in this episode. We re going to take a look at option greeks going to at delta gamma theta and vega and we re gonna make it easy that way if you re learning to trade options. You know and you re confused a little bit about the greeks. What they re for how they re used that s what this video is going to explain i want to simplify.
It to the basics and really the big picture behind it so as you take a look at this and look at option greeks. You really got to understand the whole big picture behind them so they re technically an indicator for you so if you look at this indicator here that we have on screen. This is a volume indicator and you know what it does right if you move the volume bar up it s gonna be louder if you move it down it s gonna be softer. If you look at a car gauge and this is the same concept of what delta gamma theta and vega do for you so looking at this car gauge here you can see okay we have our speedometer.
There that tells us how fast we re going and if you look over here at the fuel gauge. It tells us how much fuel. We have left in the car. So it gives us an indication of if we re getting close to when we need to refill our car s gas tank.
So this is really what delta gamma theta and vega do is their indicators. If you re sitting on your trading platform and panel. It s going to tell you okay. What s going on with this issue.
What s going on with that issue where are the risks. So here in a car because a car uses speed. And it needs gas. These are kind of the things that you need to know when you re in a car and driving forward when it comes to option trading.
You need to know and understand delta gamma and theta and vega these are your indicators. Your drivers so if we look at delta delta is basically a change for every one dollar move in the stock how much money are you going to make or lose. That s what delta tells you okay so for every one dollar move okay. It s one dollar move.
It s always one dollar move how much money are you going to make or lose. If you look at gamma. It s house asked the delta changes ok so gamma is related to your delta. How fast is that delta going to change your theta is your loss or gain.
Regarding your time. Ok. So how much are you losing or gaining on a day to day basis. Which is basically your time problem.
That you have with options and vega is your loss or gain due to volatility. Okay. So based on volatility. Because options are priced and volatility.
Think of this as you know how full or low your battery is right. It s a whole different indicator. It could be your rpms..
.
It s just another indicator that s all it does and because options are priced within volatility well that s what vega tells you so when you look at this. It s really your risks. The greeks are your risk. So delta tells you your price risk.
Gamma is the change of your price. Risk. The theta is your time risk. And vega is your volatility risk now yes.
There s also row. But that s interest rate risk. So as we get into this a little bit further and start looking at this on a trading platform. I want to share with you what this looks like so here if we look at apple here s a single contract the october 2018.
220 call and i ve just chosen this because it s kind of close to the strike price. But let s just look at our overall delta gamma. Theta and vega these are our risks. So delta is your price risk.
Gamma is related to that price risk. Theta is your time risk. Big is your volatility risk. So let s look at what this really tells us so delta starting out.
This is the most basic one that most people know delta is forty five point six three that means for every one dollar move in that stock. I make or lose 45 63. So look at it right now we are starting out with a loss of 250. So if i move this this price slice.
Okay so if this price slice moves you can see the profit and loss also moves and adjust. So let s say we move this to a positive one dollar. Okay you can see i m up about forty two dollars. Which is basically our delta now that delta continues to increase due to the gamma.
But we ll get to that in a second so again. If i go ahead and let s just say add another dollar let s just say we go up two dollars on my delta is now forty eight so take forty five forty eight dollars and add another forty eight. So right around you know ninety six ninety eight dollars depending on the rate of change. But it s going to add another forty eight dollars to my current profit loss.
So there you go you can see we re right around ninety two ninety three dollars as the stock price continues to wiggle okay. Let s add another dollar right so if we go to plus three dollars. We re gonna add fifty delta right fifty one delta. So now 91 plus.
Fifty call it ninety plus 50. About a 140. So there you go..
.
146 is what we get so we re up about a 146 now if we go the other way remember we re positive delta here so let s reset this back to zero. If we go the other way well we lose forty five dollars. Because we have a positive delta. So if we go negative.
One okay you can see we re down about forty seven dollars right. If we go down to well subtract. Another forty three dollars from this so you should be right around let s see here. You re gonna get about ninety dollars of a loss.
So you can see how delta really works now with delta keep in mind you notice. It wasn t really perfect that s because of this gamma. The gamma is the rate of change to the delta. All that means is that curvature right so that curve how fast accelerated that curve is right so if we go in and add a dollar to this look right now.
We have a delta of 46. Well. If we add a dollar that delta should be about forty eight right because a gamma is two point five seven okay. So let s add a dollar you can see there we go about a forty eight.
We had another dollar well we should be at a delta of about 50 right so you can see 51 right there. Because it s two point five gamma. So that s really all that does and the issue here is that once you get a very steep gamma while delta really switch on you very quickly for now with a 2 here. And there it doesn t make that much of a difference you know even as you start continuing to accelerate you could see your gamma is really only at about a 2 this it s more of an issue when it comes closer to expiration.
But as you can see here with a 2. It s not as big of a deal now if i bumped up let s say 220 contracts well now all of a sudden. Well you can see if i move this up a dollar you know my delta is 968. But the next time that delta is gonna be about a thousand right so take a look there you go about a thousand dollar delta.
Because the gamma is 51. So as you start trading larger you can see the numbers become much bigger and a little bit more violent. Okay. Now let s take a look at our data risk.
Beta risk is the time risk okay. So. All that does is tell us how much fuel. We have left in the gas tank right with time so every day.
We lose about five dollars and sixty cents. So as we move the time forward okay let s reset it back you can see right now. We re starting out with a five dollar loss right away bid. Ask spread okay.
If i go one day. You can see we re down about eight dollars and 13 cents. Because of the 5 and 63 loss again..
.
If i go another day well add five dollars to what we have right now okay. So you can see down 13 14. Dollars add another day. We re down about 22 add another day you re down about twenty seven dollars.
So you can see that every day. You re losing five dollars and sixty 70 cents. And this continues to accelerate with time so as you can see as they continue to increase the date or move. It forward that theta continues to climb to about 7 then 8 and so on they ll continue to accelerate and your losses.
Will continue to add up with time. So that s what theta tells you and vega is the volatility risk because options are based on pricing or the pricing of options is based on also volatility risk so. If you look at the volatility. Which is a little difficult to get you got to hit a gear icon.
Some trading platforms are a little more difficult to find these things well. Let s say i move one percentage point in volatility right there. So you can see if i go one well we go up about 30 okay because this position is a positive volatility position. It s positive 33.
So think about it one percentage point. Add 33 to our negative 2 3. 5. Loss.
And you get about a 28 positive on that position okay let s go with a positive. 2. Volatility increases two percentage points. You re up about 63 dollars.
Okay. Let s just say you go five. Well you re up about 163 dollars. There now keep in mind when volatility increases usually price actually goes down so all of these things are working together right you have price risk you know you have data.
Risk. And you have bigger risk so it s kind of like well you know your car is overheating well that s one problem you have but you re also low on gas that s a different problem. And you know you re kind of going a little slow so that they re all different issues. They all work together.
But they re kind of separate components right so you need to keep your car cool. But you also need gas in the gas tank and you need some speed to get to your destination. So that s the same thing here is yes volatility if it increases it will help you but you re gonna have a pricing problem because volatility increases usually when price goes down so they work hand in hand that overall these are your indicators. This is what you re watching.
But this is how they work let s go into the volatility. The other way so let s say you lose one volatility points. Here well you ll be down about 30 for 35 because you re positive vega..
.
Which means you lose one think of it kind of like a delta. It works in a way similar to a delta you lose one well now all of a sudden you go ahead and you lose about that 34. If you go down to volatility points. While you should be down about 68 dollars by then now if price moves up with that you know you could be kind of breaking even or up 30.
But in general this is how these things work okay. I hope that makes a little more sense simplified. It for you a little bit think of them as indicators. This is really how they work and it depends on the option spread and position that you have so let s say i go ahead and switch.
This and sell an option now all of a sudden. I m negative vega and i have a positive theta and i have a negative delta. So that means that with time let s just say we move five ten days forward well i m actually already up 48. Because we have a positive theta and in this case volatility one percentage point move up.
Actually let s just reset it will hurt. Me okay if i go to two percentage points. It ll hurt me again because i m selling options or i m a negative vega okay and the delta will work opposite here as well so if we go ahead and reset. This we ll go back to zeros delta since we re negative delta well if we go down one dollar.
We are up about 41. Because our delta is about 43 considering the bid ask spread we go down to dollars. Okay now we re up about 84. Okay so that s how that really works and if you go the other direction positive one on the on the price.
Well because of the delta well now you re down about 48 50. So i hope this makes a little more sense. When it comes to the option greeks think of them like indicators. Delta and gamma are your price.
Risk. Theta is your time. Risk. Vega is your volatility risk it really just depends.
If you re positive or negative on these and that s how those gauges work and all this is is your command center to look at well. Hey. Am. I having a pricing problem by having a time problem.
Or a volatility problem anyways. Thank you so much for joining me today. I hope this makes a little more sense. If you have questions feel free to reach out or ask a question or get on our newsletter list by clicking this button right here.
And entering your an email address. When you get there otherwise continue to join us on youtube hit the subscribe button right here and ” ..
Thank you for watching all the articles on the topic Option Greeks Made Easy – Delta, Gamma, Theta, & Vega Ep 199. All shares of newyorkcityvoices.org are very good. We hope you are satisfied with the article. For any questions, please leave a comment below. Hopefully you guys support our website even more.
description:
tags:
