Get him to the Greeks

The greeks are option metrics that traders use to better understand or try to predict how the market will change. Basically, they measure sensitivity and these are used to understand that. Options prices fluctuate differently than the stock price. There are times that a stock can rise, but the option price is stagnated. To me that can be frustrating, but one must realize that the option market is a whole other animal compared to the normal buying and selling stocks.

Credit: Robin Hood

The five Greeks above all have different meanings and measure different metrics of the options contract. Being new to options trading these have been hard for myself to understand and the main one I pay attention to is Theta because the rate of decay for option. Long options will slowly lose value over time just by the rate of decay. The rate of decay continues all the way until maturity and is a negative number. My current strategy is to do short plays with quick expiration dates, because every time I do a long play, I end up losing a high percentage of my original investment

Credit: Thomas Mann

Gamma measures the rate of change and a gamma squeeze happens when the underlying stock price rapidly goes up in the short period of time. This is what happened with $GME that shot the price up from 5 to 400 dollars a share. Gamma squeezes increase volatility rapidly and the stock could be halted from trading to slow it down. What option Greek(s) you do use for you analysis? How does that affect your strategy for buying and selling options?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s