Option Strategies with Greeks

Option Strategies with Greeks

What are the main Greeks to know for option trading ?

1. Gamma is the rate that delta will change based on change in the stock price for every point. So if delta is the “speed” at which option prices change, you can think of gamma as the “acceleration.” Options with the highest gamma are the most responsive to changes in the price of the underlying stock.
2. Theta is the time remaining of options. Options intinsric, extrinsic and time value in the option premiums.
3. Vega is the volatility (IV or VIX) of the stock or index.

The Advanced Option Strategies with the affect Greeks

1. Long Straddle option strategy

Here we buy or long a call and put options at the same strike. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options to Delta and as gamma increases we make more money that is at the ATM options. (ATM has more Gamma compared to deep OTM or ITM).

2. Short Straddle option strategy

Here we sell or short a call and put options at the same strike. The impact of Greeks is that negative Gamma, positive theta and negative vega. Meaning as volatility increases we make lesser profits, as time taken longer we make more money, Gamma is for relation of underlying to options to Delta and as gamma increases we make less money.

3. Long Strangle option strategy

Here we buy a call and put options at the same strike. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options and as gamma increases we make more money that is at the ATM options not deep OTM or ITM.

4. Short Straddle option strategy

Here we sell or short a call and put options at the same strike. The impact of Greeks is that negative Gamma, positive theta and negative vega. Meaning as volatility increases we make lesser profits, as time taken longer we make more money, Gamma is for relation of underlying to options to Delta and as gamma increases we make less money.

5. Short Butterfly option strategy

Here we sell a call and put options at the same strike at ATM mostly then we buy OTM call and puts on either side of strike price. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options and as gamma increases we make more money that is at the ATM options not deep OTM or ITM.

6. Long Butterfly option strategy

Here we buy a call and put options at the same strike mostly ATM and then sell OTM call and puts on either side of the strike price. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options and as gamma increases we make more money that is at the ATM options not deep OTM or ITM.

7. Short iron condor option strategy

Here we sell a call and put options at the near ATM strikes on either side of spot price mostly then we buy more OTM call and puts on either side of strike price. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options and as gamma increases we make more money that is at the ATM options not deep OTM or ITM.

8. Long iron option strategy

Here we buy a call and put options at the near ATM strikes on either side of spot mostly and then sell more OTM call and puts on either side of the strike price. The impact of Greeks is that positive Gamma, negative theta and positive vega. Meaning as volatility increases we make more profits, as time taken longer we lose money, Gamma is for relation of underlying to options and as gamma increases we make more money that is at the ATM options not deep OTM or ITM.