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.

The Stock Market and Financial Crises that We Live In

As you probably realize, we live in financial times, like one advertisement says. We realize this now more than ever, mainly because of recent news in the stock market and financial industry. Even big banks with long history like Lehman Brothers have serious financial problems and the whole financial sector has bad times.

Stock Market has record drops since 9/11 and majority of people are scared from this events and are afraid about their investments, retirement and future. I saw the biggest rush in the stock market in my trading career. For majority of people are events like these disquieting. However the best traders and investors know how to make money in every market, regardless if market goes up or down or how fast it goes. In this market, few days ago I had my the most profitable trade ever. I was profiting from stock, that price was going down. I used put option, that enables me to profit even if the price of underlying stock goes down.

So what's my solution for traders or investors that want to survive or benefit in every market? If you want to prosper and benefit from situations like this you must have right knowledge that will give you advantage. The right knowledge is the key that makes risk much smaller.

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.
  

Why do I trade stocks and options?

As probably everything what we do has some motivation my trading also has some deeper reasons. One from main reasons I like about stock and option trading are big profits. With stocks you can have common profits in tens of percent in time period of few months and with stock options are common gains even in hundreds of percent in few days or weeks.

Next reason is my freedom. In trading I am my own boss. I can trade when I want, how much I want, how long I want.

Very little time is required. I spend no more than one hour per day in trading.

Very little money is needed to start this kind of trading in comparison with starting up any other business that comes to mind. It costs more to start selling ice cream than it does to begin trading.

No employees.

No selling of products.

You can work from any place where a computer and an internet connection is available.

These are my main reasons for trading. I think that this list of pros can shut down any obstacles. With trading I can achieve my goals and dreams much faster. And also trading with stocks and options is my big passion.

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.