This Podcast by Kirk Du Plessis of Option Alpha reviews four of the Option Greeks and gives a good explanation for how to use the main ones or most important ones, mainly vega or volatility, theta or time decay and delta or intrinsic value.
Options traders often reference the "Greeks" which include delta, gamma, vega and theta of their underlying positions as a way to measure the sensitivity of an option's price to market movements.
To review:
- Delta is the amount an option price is expected to move based on a $1 move up in the underlying stock.
- Gamma is the rate of change in delta based on a $1 change in the stock price.
- Time decay, or theta, is the enemy of the option buyer. But it is the option seller’s best friend. Theta is the amount the price of calls and puts will decrease every single day as the option approaches its expiration date.
- Vega is the amount call and put prices will change for every 1% change in implied volatility. Vega does not have any effect on the intrinsic value of options and only affects the “time value” of an option’s price. That said, IV is the most critical element of an option the option pricing model because it’s the only unknown.
- Delta is the amount an option is expected to move based on a one dollar move in that stock. Calls have a positive delta and Put options have negative delta.
The Podcast is easy on the ears, not to long, not to short. Kirk is a clear speaker, with no discernible accent, whose spirited style is easy to listen to. I recommend this Podcast for beginning and new active traders, to review these four important elements.
Author Bio
Kirk Du Plessis
Founder of Option Alpha, a Private Options Investing Company and Options Educations Source. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.
This review ✍️ written by Shortsegments
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