Greeks- why they are important?

srikanth_kandalam · #11 1st September 2007, 01:03 PM

Continuing on my reply above- an important lesson. You can blindly go and buy Futures and expect the movement in stock to reflect in the future contract prices.

The BIG difference is in OPTIONS it is important what strike price you buy- many of the posts here typically talk about buying options without mentioning strike prices- for example if you buy ATM options your appreciation will only be half of what it will be if you bought the futures contract ( because Delta of ATM options is approx 0.5). For you to mimic futures you have to buy DEEP in the money options- something that you really need to understand before you trade options.

soody · #12 1st September 2007, 01:49 PM

In such volatile markets trading in futures without the right combination of options is highly risky , using straddles and strangles is the best strategy !

srikanth_kandalam · #13 2nd September 2007, 12:39 AM

Quote:

Originally Posted by soody

In such volatile markets trading in futures without the right combination of options is highly risky , using straddles and strangles is the best strategy !

If you're assumption on volatilit or true- the heightened IV that will result will increase prices of both puts and calls- so what apprears to be a great strategy on the face of it ( with transaction cost include) will rarely make you a significant money- not to say that they wont work, but you have to knwo your IV levels and make sure your break even justifies risk/reward of atleast 2 to 1

soody · #14 2nd September 2007, 10:10 AM

Quote:

Originally Posted by srikanth_kandalam

If you're assumption on volatilit or true- the heightened IV that will result will increase prices of both puts and calls- so what apprears to be a great strategy on the face of it ( with transaction cost include) will rarely make you a significant money- not to say that they wont work, but you have to knwo your IV levels and make sure your break even justifies risk/reward of atleast 2 to 1

I agree, but if u take positions at times of low volatility especially in far month contracts it really helps when panic kicks in.

rahul.sinha · #15 2nd September 2007, 10:47 AM

Hi Srikanth, This is rahul. I was going thru some of the links posts which you have created. was impressed by hte same. I am planning to enter the options trading arena. I had a request

. If you are comfortable then can you please give me ur id so that i can get in touch with you if i need to know something about options trading. My mail id is rahulsinha11@***************. It would be great if you could please guide me in the same.

srikanth_kandalam · #16 3rd September 2007, 08:35 AM

Quote:

Originally Posted by soody

I agree, but if u take positions at times of low volatility especially in far month contracts it really helps when panic kicks in.

You have a valid point- infact that is what you do when it is earning release time- if you take positions up early on ( say 1 or 2 months prior) and watch IV's- you can just catch the IV increase as gets closer to the announcement date. You do not even have to wait till the date of announcement- but bottomline you should understand what you are doing- options cannot be traded successfully if you ignore IV and the Greeks- that is whole lot of info you are ignoring.

If there is one thing I hope I have achieved- is please do look at these issues before venturing out.

rkkarnani · #17 3rd September 2007, 09:03 AM

Quote:

Originally Posted by soody

I agree, but if u take positions at times of low volatility especially in far month contracts it really helps when panic kicks in.

The only problem is that as of now the far month contracts are illiquid and there is no parity in prices.
As pointed out in another thread , in the IFCI Oct. Options there was just a single trade of ONE LOT!!!!
But it is advisable that we arm ourselves with the knowledge about GREEKS etc. so that we are not lacking when the time comes. And I do believe that there shall be greater liquidity in Options sooner than later.
Regards.

srikanth_kandalam · #18 4th September 2007, 12:55 AM

Quote:

Originally Posted by rkkarnani

The only problem is that as of now the far month contracts are illiquid and there is no parity in prices.
As pointed out in another thread , in the IFCI Oct. Options there was just a single trade of ONE LOT!!!!
But it is advisable that we arm ourselves with the knowledge about GREEKS etc. so that we are not lacking when the time comes. And I do believe that there shall be greater liquidity in Options sooner than later.
Regards.

As I understand it- the reason for illiquid stock options is there are no market makers- it is completely order driven- so who know offer your price and someone might bite!

If each of us keeps saying there are no trades- and dont trade- how can we expect things to change!

As I said in one of my posts earlier- for Market makers to be active, of course the powers that be should realize there are genuine benefits to having liquid markets- and more discerning investors. And the basic issues will be shorting of stocks- we just cannot claim to have open markets without shorting- as that is fundamental for price discovery- genuine price discovery!

Remember C = U +P
If a Market maker sold a call to you ( and you bought it) - he has to short the underlying and also short a put- to stay even! I am sure that day will come- but the way we interefere with markets- I am not too sure if they will be ever free totally. It should not mean however- that we should not learn and know what ails the system!

Somone pointed to me even stock options are cash settled- that is plain silly- why the hell is it called an OPTION- if there is no option! I was trying to get into longer term stocks- by selling puts and letting them exercise so I can define my entry points- if I dont get exercised, then I make the money on premium- ( after all we cant buy every stock we like)- if I do then I wanted thet stock anyway! But if they are settled in cash- it is silliness! I need to do more research- and unfortunately I have been busy!

yoogi · #19 4th September 2007, 04:51 PM

I dont really see a problem in settling with cash, unless you fear a opening gap.
But when you do it manually on the last day, it is just slippage. Or is it taxation?

srikanth_kandalam · #20 5th September 2007, 05:02 AM

Quote:

Originally Posted by yoogi

I dont really see a problem in settling with cash, unless you fear a opening gap.
But when you do it manually on the last day, it is just slippage. Or is it taxation?

If for example I want to buy a stock at a lower lever than what it is now- and hold for my long term portfolio- I would sell a put ( target price will be strike price)- and let it be exercised - instead of chasing the stock. IF I cant exercise it for stock- it makes no sense to call it a put "option"- and I hope we know an option to buy or selll a stock at a certain price for a consideration called premium - and in a given time frame.

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