Option Trading Course Stresses Greeks

Let's talk about the often misunderstood option Greeks

. Beginning option traders only focus on the Greek known as Delta, and although Delta can tell us many things about our option position, there is more to look into. A good trader will focus a lot on volatility in the stock market.

When adjusting the Delta of an option position to manage risk, it's important to understand how to use volatility to adjust a position in their favor, sadly many traders don't. There are different types of adjustments that can be done to not only adjust the Delta on the trade, but also adjust the position's sensitivity to the implied volatility of the underlying asset.

Take an option spread called a "Butterfly" for example. The stock market trends up to hit your adjustment point. What kind of adjustment do you make?

Always remember, when trading options, it's important to follow the volatility chart along side the price chart.

Think of it this way, if the underlying is trending up, it usually means the volatility is going down, but not always. So when making your adjustment, try an adjustment that benefits from a falling volatility! It's called a Negative Vega Adjustment, unless you want to prepare for a whipsaw move in the market, then you should do an adjustment that adds positive Vega to your position.

Learning some technical analysis skills is the best thing you can do to help you make decisions on what type of adjustments you should make. Forecast the price of the underlying, and its implied volatility, when you're studying the charts.

When making adjustments to your option trades, it's always a good idea to keep Vega in mind. Ignoring this can seriously put a damper on your potential for long term returns.

So remember, when comparing your adjustment possibilities; remember to analyze the volatility graph so you can choose the best Vega adjustment. To see videos about the many ways to neutralize the delta position of your option spreads and other adjustments, visit www.sjoptions.com

by: Donald Scott

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