Four Factors for Measuring Risk: Delta, Gamma, Theta, Vega

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[@shussing]

Been trading options for a year now. After about 500 trades, I can now appreciate the Greeks and their role and the importance of identifying the right Greek fir your trade prior to taking your trade. Understanding this video is critical for making money and avoiding losses. Good luck 👍

[@srf2112]

You sir are the single most articulate Y/T trading "guru" of all that I've watched. A lot of the other "advisors" on here misspeak terms and worse in their videos. Inconsistency like that makes it very hard to understand. Thank you.

[@jazzyjay5485]

Quick, straight-forward, easy explanation to something that many others have made to appear so complex. Thank you

[@samallen4213]

All the reference sources I have looked at, including Investopedia, CBOE, etc. consider extrinsic value and time value of an option to be one and the same, however it is my understanding that extrinsic value consists of time value plus value due to implied volatility. There is even an option parameter "vega" that gives the effect of a change in implied volatility on the extrinsic value of the option. Are all the authorities wrong? If so, how do I calculate time value and implied volatility value individually? The two added together should equal extrinsic value.

[@danthemann6565]

Very well explained, thank you Mike.

[@umangjain9609]

Helpful ....Thank You Sir :)

[@daviddean2082]

great explanations

[@Robert-jd4lx]

Great explanation as always, but I would like a deeper explanation / example of how to use Delta to hedge. That was a little unclear, so an example would be helpful.

[@utsavsharda]

delta hedge means you try to hedge against the direction. for e.g., if you have 100 stocks (stocks have a delta of 1) then your delta is now +ve 100 now if you are unsure about future prices you will try to hedge your open position so you will try to sell call of 0.3 deltas a call have 100 unit size now what you have done is going long on 100 deltas and same time going short on 30 deltas (0.3×100=30) which means a net position of +ve 70 deltas. you minimized your risk from 100 to 70. it can be used for stock futures too which is called as delta hedging in that case you sell 100 deltas and buy 100 deltas future or vice versa which in end will give benefit due to theta decay.

[@SameerLatif]

Thank you so much for a wonderful explanation. Just one question, do you think vega is a redundant parameter? Just by looking at IV and beta can't we get an idea how volatility looks like?

[@tastyliveshow]

Glad you liked it! I don't think it is redundant, but extrinsic value will be zero at expiration, so if I have enough capital to withstand vega losses if we get an IV increase then I am less worried about it than if I am super leveraged. To answer your question though, yes we can look at IV and beta to get a general idea of what IV looks like, but vega tells us what change in our option's price we can expect given a 1% increase in decrease in IV, which can't be derived from IV% or beta.

[@sushilparajuli007]

thank you for the video

[@VideoBourse]

Thank you for those informations 💡

[@anuragsharma5255]

Nice explanation sir

[@Shaniloka369]

What a smart teacher. Thank you. Do you have a favorite days that you like to buy?

[@hurdur6828]

monday

[@traderlincolnmitchell9786]

good video

[@roc3429]

First-Rate teaching!

[@gargijain3800]

Thanks for the video...Very well explained..

[@egoboy]

Where do you find these data points in brokerage software, like think or swim?

[@tastyliveshow]

On the trade page, you can switch the columns to reflect the greeks you're looking for.

[@keatonmorgan295]

Great video

[@Sir_Pumpington_Of_Dumpenshire]

some options chains don't display greek information like BRK.B

[@khalidrashid3838]

do you provide mentoring ?

[@tastyliveshow]

I do not - you can shoot any questions you may have about strategies or concepts to [e-mail] if you'd like!

[@tictacsmurf5193]

Cheers broski, your video is pretty good

[@GeekyGizmo007]

So as a seller we want negative gamma, right?

[@tastyliveshow]

As sellers, we want LOW gamma. High gamma translates to big changes in delta, which translates to big swings in P/L. Low gamma means small changes in delta, which means smaller swings in P/L. That's why we typically roll trades at 21 days, to get back to the 45 DTE cycle which has lower gamma risk.

[@davidjoegamez5901]

Awesome

[@WelcomeHome76]

wouldn't theta be 2.5% not 5% in your example?

[@dustinbai8509]

matt damon??

[@zc7662]

what happens if Gamma is for example .8887 and delta is .3236 how can that be when delta can not be above 1? -thank you

[@nyx211]

gamma also changes with respect to price.

[@reynaarellano7981]

if this video make very little sense to me in the way of being able to answer series 7 questions am I too stupid

[@tastyliveshow]

Options trading lingo is a completely new language - once you get over that hurdle a lot of things will make more sense!

[@rujotheone]

Still don't understand gamma

[@zhengyihu5828]

OMG this guy is way too hot for me to concentrate on what he's talking about....

[@patrickjhonzuniga]

The real question is, is he single tho? Tastyworks I need answers

[@noneyobusiness7331]

man yall always start out so good and then lose me 2min in - can you break stuff down even further for the newbies please?

[@troyblaine370]

instaBlaster...

[@ronnieriveros6067]

Speak of the devil, I was, the last 2 days, reading abt the Greeks and trying to understand it.. Haha and here u r. Haha

[@nicholasmusgrave5006]

Dumb question re your explanation of Delta: Delta = .50. Option price = 1.50 If an increase of $1 in the underlying causes a .5 (50%) increase in the option, shouldn't that increase = 0.75? An increase of 0.50 to 2.00 is an increase of 33.33%... no?

[@tastyliveshow]

Not a dumb question! It is not presented as a percentage - it is actually a raw dollar amount. If you see a delta of 0.50, that is actually $0.50 rather than 50%. So if a call option is worth $1.00 with a delta of 0.50 and the underlying increases by a dollar, the option would be worth $2.00 all else equal.

[@brithopper]

Hmm...If a call option is worth $1.00 with a delta of 0.50 and the underlying increases by a dollar, would the option be worth its original $1+ delta .50 = $1.50 !!??

[@karolynson3591]

@@brithopper That was exactly what I was wondering...