Understanding and Calculating Option Greeks in Python

[@irmdev595]

"thats what the greeks are for..." excellent demo. looking forward to more content. keep it at this level for folks like me. What happens when someone has an option b? what is the impact? big picture wise.

[@QuantGuild]

Hello glad you enjoyed the video! Delta tells us how many shares of the underlying asset to buy or sell to effectively hedge the current option position, thus if we were operating under option b we would compute delta and buy or sell shares according to our option position (long or short). Hope this helps!

[@pimpXBT]

my man🗿

[@Septumsempra8818]

How does option pricing change in the "real world"? If given a price for an option, what's the step by step process an institutional investor takes to determine whether or not to buy? It seems to me like there is a big disparity between what we learn in class and how its applied in a high throughput environment. s/o from South Africa

[@QuantGuild]

Hi Alexandros, This is a great question that the classroom often doesn’t answer, after all, why should we care about the risk measures if we don’t know when to buy or sell in the first place? What’s interesting is that most institutions are actually concerned with buying AND selling - this isn’t taking a speculative position rather making the market (hence the term market maker, if this is new to you I would research this topic a bit!) institutions that make markets in equity options don’t choose their positions rather they control a spread and prices at which they buy and sell at - this is where modeling comes into play! If the market maker knows the price based on some model the price can be adjusted to gain a statistical edge so the market maker may profit in the long run by hedging these risk measures covered in the video. Don’t think of it as speculation and choosing positions, rather as an entirely different job function. I hope this helps!

[@Septumsempra8818]

@@QuantGuild Thank you. This answer adds quite a bit of clarity. If I'm understanding you correctly, and extent the logic a bit further, if I'm an average portfolio manager who's trying to hedge a position, I should just buy at the price that's given in the liquid market. Only when I'm in illiquid markets or if I'm a market maker, only then should I be worrying about pricing them with fancy models?

[@QuantGuild]

@@Septumsempra8818 Absolutely! Of course, there are situations where your hedging instrument is illiquid or the model you are using to price your books is fancy - but otherwise yes that's the idea!