Option Greeks-Introduction

If you have ever traded options, maybe this scenario is familiar to you: you bought a call when you thought a stock was going to go up but that call lose value when the stock did go up and you didn't know why? It is because the price of option is not affected only by change in price of underlying asset but also by the effects of time and volatility. Many of us can relate to this situation. The problem here is that an options price relies on more than one factor. With stock, you always make money when stock goes in desired direction, so this is one from the most important differences between stock and option.


The Greeks are the name given to a group of statistical references that describe and quantify risks to the variables that can effect the price of options. They describe how the price of options will change in different scenarios. I think that to know what risk you take is very important with every investment you make, it will help with making decisions whether or not to choose any given option.


Option Greeks are delta, theta, gamma, rho, vega, and omega. Each one of them measures some aspect of an option position's market risk-reward profile. This definition is true whether the position is a simple one involving one or perhaps a few different options or a more complicated position. I will explain the most important option Greeks for option trading later in my posts.

Benefits of Stock Options

Stock options are wonderful financial instrument and tool. Maybe you heard famous saying that options are risky. Sure it's true when you know nothing about them. I think that not enough knowledge is the only serious reason why not to trade options, because benefits of options trading can easily outweight any obstacles. This is list of some benefits.

• Leverage. One from the most important words in wealth creation. The basic definition of leverage is the ability to do more with less effort. How this applies to stock options? We can control more assets with less money. One option contract controls 100 shares. With fraction of cost we would pay for equivalent number of shares, we control and profit from change of price of all underlying shares.

• Big profits even in short time. Because options are very sensitive to the underlying stock's price movements and costs for buying options is low in comparison with shares, percentage returns can be very big.

• Profit even from declining stocks. Based on what strategy we will use we can profit in every situation. We can use puts when stock goes down or calls when stock goes up. We can even profit when stock goes sideways.

• Reducing or eliminating risk. Options can protect us from some unwanted scenarios when for example price movement of stock doesn't go in direction we would want. Also risk from point of amount of money we put to options trade is much less then with comparison with shares.
  

Stock and Option Trading

This is my first post so forehand I would like to welcome you in my blog. My intention is to share my knowledge and personal experience with you. At start I will talk about stock and option basics and later I will move on to more advanced informations. I will talk about stock market, option trading strategies, trading psychology, money management, fundamental and technical analysis, trading tools and other topics belonging to stock and option trading.

For some of you it can be stock and option trading course but the main purpose of this site is to share valuable informations about stock and option trading. From part it will reflect my journey from beginner to more experienced trader.

I think one of the biggest mistake that a lot of people do is that they put their hard-earned money to some stock they know almost nothing about and they pray and hope that price of stock will go up. That’s stupid. They should spend some time learning and researching. And this rule applies to everything you put money in.