“It felt just fine to buy a stock options contract for a popular biotech company,” recalls Dan Passarelli. “But all that quickly washed ashore, like so much jetsam after an ocean storm, as the latest biotech bubble burst.”
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Passarelli, a former nuclear-submarine officer and former CFO, chief strategy officer and VP marketing for several companies, learned a painful lesson: Volatility in the equity markets could trash his investment strategy, and the market’s swings don’t always go up.
Instead of cutting and running, Passarelli, who recently joined the Options Institute as its chief learning officer, decided he needed to learn more about trading security options to protect his principal. He learned how to become adept at trading option Greeks, which enable investors to understand potential risk and reward scenarios in the equity markets. Utilizing his MBA in finance from Columbia Business School, Passarelli has become an expert at turning Greek letters into opportunities to trade options profitably.
Understanding Option Greeks
An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) a specific number of shares (100 shares per contract) of a specific stock, at a specific price (strike price), on or before a specific date (expiration date).
The four basic Greeks of options pricing are delta, gamma, theta and vega.
Delta measures the sensitivity of an option’s price to changes in the underlying stock price.
Gamma measures the sensitivity of delta to changes in the underlying stock price.
Theta measures the sensitivity of an option’s price to changes in time to expiration.
Vega measures the sensitivity of an option’s price to changes in implied volatility.
Options strategies that utilize the Greeks can make an investor’s income steadier and less subject to the fluctuations of the underlying market. Dan Passarelli’s career path demonstrates the way these analytical tools can offer sustainable value over the long term.
Latest Trends in Greek Trading
In recent years, there has been a growing trend toward using technology to trade options Greeks. This has been driven by the development of sophisticated trading platforms that make it easier for traders to analyze and execute complex options strategies utilizing the Greeks.
Tips for Trading Greeks
- Learn the Greeks. Before you start trading options Greeks, it is important to understand how they work.
- Manage your risk. Options trading can be risky, so it is important to manage your risk carefully.
- Use a trading platform. A trading platform can make it easier to analyze and execute complex options strategies.
- Practice. The more you practice trading Greeks, the better you will become at it.
Is ‘Greeks’ a Topic You’d Like to Trade?
Trading options can be complex, but it can also be a rewarding undertaking. I encourage you to obtain a deeper understanding of how it works. An increased knowledge of your invested assets will help you make more informed investment decisions, just as it did for Dan Passarelli.
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Trading Option Greeks By Dan Passarelli
