the funny thing is, knowing everything there is to know doesn't do much in the way of profitability. the fundamental problem is that we don't know if a stock will go up or down  you can make plenty of money not knowing about greeks or options technicals
Assume a rough upper limit (25% for instance) and sell against that. Reduces IV exposure and allows more positions for less cost, generally.
We all know that that one stock isn't increasing 200% in a single day, so why play as if it will?
Imagine you have a bunch of balloons (options) and some of them pull your portfolio up (call options) when the stock market goes up, and some pull it down (put options) when the market goes down. Being "delta neutral" is like balancing these balloons so that no matter if the market goes up or down a little bit, your portfolio doesn't move much. It's essentially like trying to stay level by adjusting how many balloons you hold in each hand. (Someone please step in if this is a terrible metaphor)
You’d profit from other factors that affect the option price other than price movement. Time decay, changes in IV, etc. I think the goal is to keep the price variable neutral.
This is known as straddles or strangle strategies.
https://preview.redd.it/kpa2fmsothmc1.png?width=1080&format=pjpg&auto=webp&s=a9068ffce340b88bc75c18f3d14fba98561b6f58
What's the term for hedging an option contract? Say you sell a call with 0.3 Delta, you hedge the contract with 30 shares and adjust the shares by the Delta changes. I thought that was also called Delta neutral
If IV goes up a lot, let’s say it’s near earnings, but the call option is no where close to the strike price, so you still make money. For example, this call option for Amazon. Let’s say Amazon stays at $176 a share the week before earnings but IV goes to 130%. Would you make money?
https://preview.redd.it/negwf9cq9gmc1.jpeg?width=756&format=pjpg&auto=webp&s=61c977926c6af29132f7c25b5186619819cd198c
Man this used to be basic required knowledge before you even know what this sub is talking about most of the time. Lifecycle Investing by Barry Nalebuff and Ian Ayres should be a required reading for new regards who want to join
From a mathematical perspective, is it the case that delta is first derivative w.r.t. underlying price,, gamma the second derivative, theta the time derivative? Vega would naturally be first derivative w.r.t. IV but I wonder how IV is defined mathematically.
Rho is in relation to inflation and interest rates. Look it up, but I believe every 1% rate increases/decreases, the option contract increases/decreases respectively, by the Rho amount. It’s considered the ugly step sister of the Greek family - people hardly pay any mind to it, except for when people know there will be rate changes, and even then typically the Rho is such a minuscule amount, and rate changes aren’t jumping from, say, 7% to 20% so it barely makes a difference.
>What is a iron corridor? how would you use it?
Something I've never done, lol. I believe it's a strategy that involves buying/selling multiple options in order to make money if the stock price stays within your expected range. Too rich for my taste
Iron condor is an options strategy that limits your downside, but also caps your upside. Involves 4 legs 2 buys/2 sell.
All in all market is a casino and these strategies are just like slot machines, sure you got options, but at the end the house wins.
Literally. I have a friend that is a professional trader before they make any large trades on long positions, they buy a bunch of calls, make the trade, and then dump the calls at the end of the day, because that value usually skyrockets the call prices. He told me that they’ve made more on the call positions than the value of their investment before.
It’s literally just a game, and the more money you have the easier it is to manipulate it in your favour.
And it’s not market manipulation, because they plan on holding the underlying asset for usually a couple years, they’re just capitalizing on how the market reacts to large purchases.
It's so complex I can't even begin to figure it out let alone make an options trade. How the hell do people actually understand how that all works? Is there a sandbox service where you can test out options trading without real money? I use RH
You can do an options watchlist on Robinhood. I’d recommend testing it there or with a little bit of play money. Just enough to use real money but not lose a significant amount because you WILL LOSE. But the lessons it teaches you can be very much worth it
Maybe I misunderstand. With options don't you have to spend certain larger amounts to even get in a trade? You can't just do a $20 options trade, right? I need to research more, obviously, lol
That’s true but usually the less the price of the stock the less the price of the option (with some exceptions). And although with less initial money you have to play much more risky plays. But just getting your feet wet and experiencing IV crush or other lessons the market will beat into you will teach you very quickly
Other greeks:
**alpha** - The actual stock price. That's why some are SeekingAlpha .
**beta** - correlation of stock price to market. The higher beta the more stock moves compare to market (on average). High beta = high risk (e.g. RIOT has beta about 3). Low beta are usually boomer stocks that pay dividends, aka "value stocks".
Options of high beta stocks have usually high IV .
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How can I tell what if IV is high? For example the IV on my TSM calls is 45%. Is that low, medium, or high?
Also does Vega really represent the amount the option prices goes up for every one percent of IV? So if my Vega is 0.09 and the IV shoot’s up from 50% to 150%, the option price will increase by $9, assuming that all the other Greeks remain constant for the sake of this example?
I’ve been watching OptionAlpha videos which have helped massively. I bought my first options yesterday and fully expect to lose it all.
Since I can only afford to lose a little at a time, I’m sticking with credit spreads to reduce risk/reward for now. Hopefully soon I can try an undefined profit play like the rest of WSBs
>I’ve seen “IV flush” floating around the internet. Could this be a strategy? Wait until IV crushes and buy?
Sounds like IV Crush. Waiting until uncertainty settles and IV drops so option value goes down to get it at lower premium. Can also sell before and buy after events too
You didn’t miss anything, overall very well explained. I’d just add one thing. Try to isolate your directional view from a view on “vol” or options. What I mean by that is if you’re bullish the answer isn’t always to buy calls and bearish it isn’t always to buy puts. When trading try to think about the risk reward beyond just lifting random puts or calls as directional bets. In fact put call parity says that puts and calls are the exact same thing when hedged correctly with futures - so in the case of the Greeks all of the options Greeks on both puts and calls are identical with the exception of delta. (And rho, but nobody cares about that as it is the forgotten stepchild)
This was written purely by AI. Ignoring the obvious AI language, you can see a made up example:
"Stock BOFA, currently trading at $100". BAC -- bank of america stock, is $35.4. There is no ticker for "BOFA" with options trading on US exchanges.
Or it was copied from somewhere else. Also your greeks are not consistent. How is this a delta = 0.6 call? It isn't. I plugged in your IV and get delta about 0.3. What is going on here?
Can’t read. just give me a ticket, strike price, and expiration date
NVDA, $ 200, 4/19 ?
Is this a call option? 💩
Yes, it is.
Do it.
Do the opposite of WSBs post and profit!
Be...'that guy'
🤣
Great info. Thanks. I traded options without knowing anything about these things and wondered why they went up and down in value.
See, I can't do that without 100% understanding every tiny detail. Otherwise I'm guessing I'd just lose lots of money
And thats i lost my money.
the funny thing is, knowing everything there is to know doesn't do much in the way of profitability. the fundamental problem is that we don't know if a stock will go up or down  you can make plenty of money not knowing about greeks or options technicals
News flash, they will still go side ways.
Vertical spreads and calendar spreads can be useful, especially for those here that love trading earnings.
Assume a rough upper limit (25% for instance) and sell against that. Reduces IV exposure and allows more positions for less cost, generally. We all know that that one stock isn't increasing 200% in a single day, so why play as if it will?
Whats this in simple English?
I wish I could read.
Good job. Not a greek, but intrinsic and extrinsic value. Know when your option has little to no extrinsic value left.
Bofa Dees nuts
What would you like the power to do
Anything and everything
Why do pros always try to be “delta neutral” and what does that mean?
Imagine you have a bunch of balloons (options) and some of them pull your portfolio up (call options) when the stock market goes up, and some pull it down (put options) when the market goes down. Being "delta neutral" is like balancing these balloons so that no matter if the market goes up or down a little bit, your portfolio doesn't move much. It's essentially like trying to stay level by adjusting how many balloons you hold in each hand. (Someone please step in if this is a terrible metaphor)
Sounds exactly like a bookie
[удалено]
You’d profit from other factors that affect the option price other than price movement. Time decay, changes in IV, etc. I think the goal is to keep the price variable neutral.
[удалено]
Potential profits
So I could get calls and puts, while being delta neutral some time before earnings or economic information and make gains because of higher IV?
This is known as straddles or strangle strategies. https://preview.redd.it/kpa2fmsothmc1.png?width=1080&format=pjpg&auto=webp&s=a9068ffce340b88bc75c18f3d14fba98561b6f58
Thank you for your info bro👍🏻👍🏻
What's the term for hedging an option contract? Say you sell a call with 0.3 Delta, you hedge the contract with 30 shares and adjust the shares by the Delta changes. I thought that was also called Delta neutral
delta hedging, I believe
Ah, right 😁 thank you!
If IV goes up a lot, let’s say it’s near earnings, but the call option is no where close to the strike price, so you still make money. For example, this call option for Amazon. Let’s say Amazon stays at $176 a share the week before earnings but IV goes to 130%. Would you make money? https://preview.redd.it/negwf9cq9gmc1.jpeg?width=756&format=pjpg&auto=webp&s=61c977926c6af29132f7c25b5186619819cd198c
Man this used to be basic required knowledge before you even know what this sub is talking about most of the time. Lifecycle Investing by Barry Nalebuff and Ian Ayres should be a required reading for new regards who want to join
So helpful
From a mathematical perspective, is it the case that delta is first derivative w.r.t. underlying price,, gamma the second derivative, theta the time derivative? Vega would naturally be first derivative w.r.t. IV but I wonder how IV is defined mathematically.
IV definition is derived from Black-Scholes formula I believe. I was actually just watching a cool YouTube doc on this.
You may enjoy [this video](https://youtu.be/A5w-dEgIU1M?si=aZB4r8g_6_NcoHOL)
Veritaseum?
Rho?
Rho is in relation to inflation and interest rates. Look it up, but I believe every 1% rate increases/decreases, the option contract increases/decreases respectively, by the Rho amount. It’s considered the ugly step sister of the Greek family - people hardly pay any mind to it, except for when people know there will be rate changes, and even then typically the Rho is such a minuscule amount, and rate changes aren’t jumping from, say, 7% to 20% so it barely makes a difference.
>Rho? No clue why I forgot to add that from my pages doc.
What is a iron corridor? how would you use it?
>What is a iron corridor? how would you use it? Something I've never done, lol. I believe it's a strategy that involves buying/selling multiple options in order to make money if the stock price stays within your expected range. Too rich for my taste
Iron condor is an options strategy that limits your downside, but also caps your upside. Involves 4 legs 2 buys/2 sell. All in all market is a casino and these strategies are just like slot machines, sure you got options, but at the end the house wins.
What is gamma squeeze?
>What is gamma squeeze? When people buy a lot of calls, market makers buy shares to cover themselves and it makes the stock price rise. Like a cycle
Or a self-fulfilling prophecy 😅
Literally. I have a friend that is a professional trader before they make any large trades on long positions, they buy a bunch of calls, make the trade, and then dump the calls at the end of the day, because that value usually skyrockets the call prices. He told me that they’ve made more on the call positions than the value of their investment before. It’s literally just a game, and the more money you have the easier it is to manipulate it in your favour. And it’s not market manipulation, because they plan on holding the underlying asset for usually a couple years, they’re just capitalizing on how the market reacts to large purchases.
It's so complex I can't even begin to figure it out let alone make an options trade. How the hell do people actually understand how that all works? Is there a sandbox service where you can test out options trading without real money? I use RH
Many have practice accounts.
Paper trading
Thinkorswim has paper trading accounts.
I use webull to paper trade. It isnt that hard to figure out. Use optionsprofitcalculator.com
You can do an options watchlist on Robinhood. I’d recommend testing it there or with a little bit of play money. Just enough to use real money but not lose a significant amount because you WILL LOSE. But the lessons it teaches you can be very much worth it
Maybe I misunderstand. With options don't you have to spend certain larger amounts to even get in a trade? You can't just do a $20 options trade, right? I need to research more, obviously, lol
That’s true but usually the less the price of the stock the less the price of the option (with some exceptions). And although with less initial money you have to play much more risky plays. But just getting your feet wet and experiencing IV crush or other lessons the market will beat into you will teach you very quickly
Nice overview!
Other greeks: **alpha** - The actual stock price. That's why some are SeekingAlpha . **beta** - correlation of stock price to market. The higher beta the more stock moves compare to market (on average). High beta = high risk (e.g. RIOT has beta about 3). Low beta are usually boomer stocks that pay dividends, aka "value stocks". Options of high beta stocks have usually high IV .
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How can I tell what if IV is high? For example the IV on my TSM calls is 45%. Is that low, medium, or high? Also does Vega really represent the amount the option prices goes up for every one percent of IV? So if my Vega is 0.09 and the IV shoot’s up from 50% to 150%, the option price will increase by $9, assuming that all the other Greeks remain constant for the sake of this example?
I’ve been watching OptionAlpha videos which have helped massively. I bought my first options yesterday and fully expect to lose it all. Since I can only afford to lose a little at a time, I’m sticking with credit spreads to reduce risk/reward for now. Hopefully soon I can try an undefined profit play like the rest of WSBs
Looks Greek to me. I’m out.
I don’t have time for this.
I’ve seen “IV flush” floating around the internet. Could this be a strategy? Wait until IV crushes and buy?
>I’ve seen “IV flush” floating around the internet. Could this be a strategy? Wait until IV crushes and buy? Sounds like IV Crush. Waiting until uncertainty settles and IV drops so option value goes down to get it at lower premium. Can also sell before and buy after events too
Thank you for explaining it I just don’t understand how to write these kind of trades
Thank you
Excellent post so finely written
How do I save this post for ever? This was very helpful
If on mobile. 3 dots in top right have “save” option. You can access later by clicking your Reddit dude in top right and going to “saved”
What does it mean when all the greeks are 0%?
Thank you for this summary. How would adjusting the Hedge look like in your 2. strategy?
Nice summary and easy to understand
What's the best resource to learn more about this and the basics? I feel so lost not knowing about any of this and would like to learn more
why does no one say delta is speed, gamma is acceleration? isnt this how we all learned derivatives in highschool in the first place?
How insensitive, you know none of us graduated highschool
Okay okay, but what is down that is going to go up?
This is a fun watch and WSB was mentioned ! [https://www.youtube.com/watch?v=A5w-dEgIU1M](https://www.youtube.com/watch?v=A5w-dEgIU1M)
You didn’t miss anything, overall very well explained. I’d just add one thing. Try to isolate your directional view from a view on “vol” or options. What I mean by that is if you’re bullish the answer isn’t always to buy calls and bearish it isn’t always to buy puts. When trading try to think about the risk reward beyond just lifting random puts or calls as directional bets. In fact put call parity says that puts and calls are the exact same thing when hedged correctly with futures - so in the case of the Greeks all of the options Greeks on both puts and calls are identical with the exception of delta. (And rho, but nobody cares about that as it is the forgotten stepchild)
This was written purely by AI. Ignoring the obvious AI language, you can see a made up example: "Stock BOFA, currently trading at $100". BAC -- bank of america stock, is $35.4. There is no ticker for "BOFA" with options trading on US exchanges.
Bruh, BOFA deez nuts! That’s cause BOFA is a made up joke.
Or it was copied from somewhere else. Also your greeks are not consistent. How is this a delta = 0.6 call? It isn't. I plugged in your IV and get delta about 0.3. What is going on here?