Options Geeks: An explanation
Posted: May 08, 2024
- Options premium is determined by supply and demand - Black Scholes Model is a guide but not definitive - Greeks (Theta, Delta, Gamma, Vega) explain premium in terms of time, underlying price, rate of change, and volatility - Theta decay: slow decay for long options, significant increase in last 20% - Delta: 0.5 at the money, increases in the money, decreases out of the money - Gamma: max at the money, drops in/out of the money - Vega: change in price with volatility change, can cause windfall or blow out - Implied Volatility (IV) can explode or implode based on supply and demand - IV crush is lack of buyers causing premium to dive
Summarized top reddit comments: - Options trading involves various "Greeks" which represent different factors affecting the price of the option. - Rho and phi are not as important unless you are trading long-term options (LEAPS). - The Greeks are not actual people in Greece, but rather analytical terms used in options trading. - Options can go up, down, or stay the same. - Different platforms may represent the Greeks in different ways, but there are standard representations in the options trading community. - Charm and Vanna are also important factors to consider in options trading.
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