When you are into options trading, you must also be familiar with the Greeks as they say. In fact, it is said that if you don’t know how to read the Greeks and you are engaging in trading options, it would be like a pilot who has no ability to read instruments. That is right thus you should get familiar with the options Greek first so that you will understand the lingo used in options trading. This is not something that is hard to understand though as you can find a lot of information online. You just have to be resourceful.
You can also start learning about some of the Greek terms below:
- Delta – this refers to the rate of change of the price of the option when it comes to its underlying price. This can be viewed as a possible percentage that an option will end up in-the-money at the end of the given time.
- Theta – this is what they call to the measurement of the option’s time decay or when it losses value over time. Most of the time, time decay speed up as the options are in their final 30 – 60 days of their allotted time.
- Vega – this is what they call to the measure to the effect of changes in the Implied Volatility on the price of the option. It goes without saying that if you will buy options, the Vega is your ally and when you plan to sell them, it is your enemy.
- Gamma – refers to the measure of the rate of change of its delta. This is expressed as a percentage. Just like with the Vega, when you buy options, the gamma is in your side and when you sell them, it is your enemy. When the options are sold when they are almost in their expiration date, this will generate higher positive theta every day but higher negative gamma. One thing you should take note is that you should never ignore negative gamma.
If this is the first time you will try options trading or trading for that matter, it will be best if there is a pro to guide you. Check out some online sites that provide trading forums and education as for sure, you will be benefitted from their experiences. Just because they are already expert today, they were experts right from the start. That is not the case as every expert starts from being an amateur.
However, the good thing with learning from them is that you need go through the same mistakes they have experienced. You will be warned already and this is really a great advantage. No one has told them then thus you should be glad that you have a chance of being under the wings of experts.
Indeed option trading is quite confusing and in fact, even the experts admit this. This is why, they are quite willing to help those who are interested. Thus be resourceful so that you will be able to learn options trading from the pros.
About the author – Kim Klaiman, an option trading expert claims that trading without familiarizing the Greeks is futile.