Options Trading Pro: The Greeks and How Major They Are in Options

Options Trading Pro: The Greeks and How Major They Are in Options
Options Trader John Napolitano goes over the importance of knowing the Greeks when it comes to options trading. The Greeks are what drives your ability to make a profitable portfolio. They play a major role, and it's critical to understand what they mean.
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Let's see. Michael asking about the
Greek. So the Greeks are like the gauges on your car. You obviously it's depending on, it's, that's a great question, but it's very hard to answer because there are so many ways to choose Greeks for depending on what strategy you're using, right?
  📍 So I want you to just think of Greeks as if you're driving along the road,
  📍 they don't necessarily control your car, but they tell you what to do.
  📍 And that's how the Greeks work.
  📍 So Delta tells
 you, obviously the price movement based on a dollar moving the stock price, it's also an kind of a rough probability gauge.
  📍 Theta is obviously
 time to gain so you know how much money you're losing every day just based on ho holding that option. That's a very important gauge to know.
  📍 And Vega tells
 you percentage volatility. So a 1% move in volatility, it shows you the dollar move in the underlying option. These are all things that you have to be aware of.
And you have to know where they're at in order to pick the right strategy. Okay. I want to go
back on something you had mentioned before about
  📍 debit spread. If we're buying,
 let's just say we're buying a straight up call, which I think most people are familiar with doing, where if
  📍 it's going up, they're buying a call.
If it's going down, they're buying a put.
 If, let's just say for argument's sake, that call costs $500, just for argument's sake. So the reason we're selling the out of money call is to bring that cost down from, let's say 500 to 200. We're capping the upside, but it's costing us less to get into the position.
Is that correct? That's
exactly it. So what you're essentially doing is you're going from 500, let's say you sell you sell an out of the money, call at a target that you don't think. Individual stock is gonna reach
  📍 you obviously don't wanna pick something too close because then you're leaving money on the table.
 So you have to pick, and that's where Delta comes in. You look at Delta then as like a probability measure so that, so you could look at the chart, come up with a target, and then figure out what that number is, what that strike price might be, and then see what that delta is, see what the stock, see what the market's telling you, so the
delta is the odds of it hitting the one you sell and the time? Delta,
Delta is roughly it's a measure of money movement, but it also measures the rough probability of something expiring in the money. That's what I meant. Something has a delta. If something has a delta of. , it has an 80% probability of expiring, not in the money.
It's not a probability of making money. Don't keep, I don't want to, I don't wanna make that mistake. It's a probability of just in the money. Okay. So basically you want something with a low delta then obviously cuz you don't want to hit it, you want it to expire worthless. That's the whole point. And you just want to lower the cost of your trade.
So the reason I brought that up is as again, we have a lot of new members or new people on the call is you think about the allocation of capital and how a lot of people try in from the start to think about how much they could make versus how much can I allocate to that one position. So in other words, instead of buying a bunch of outta the money calls, spending a thousand dollars, just as an example if you know
  📍 that spread has a high probability, we'll stick to probability as the key word here.
 And you like that one setup, but then you do that same setup three times. Now you're putting up $600. to, it's a limited upside, but you've put together a good
trade, but it's a higher
probability. Higher probability. Exactly. The point I'm trying to get across here is there's so many nuances that go into
  a profitable options trade as opposed to, I just want to be a buyer
or seller.
 Yeah, no. When as you gain more experience trading, you'll realize, it's it's all
  about risk management and allocating capital appropriately.
 You know what I mean? And that's the key. If you have a thousand dollars to spend, I'd much rather spend it on, at the money vertical spread, let's say, that has a high probability outcome as opposed to just
go with the lotto ticket.
Because again,
 if the lotto ticket comes in, yeah, I might make $3,000, but I only have maybe a 20% prob. To me that just isn't worth it. I'd rather off do something a little bit smarter than that.
John Napolitano: Options Trader
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