Introduction to Option Greeks
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The document serves as a preview for a webinar on option greeks and covers essential topics such as option pricing, the Black-Scholes model, and how to apply option greeks in trading. It outlines the types of options, their intrinsic and extrinsic values, and details on the greeks: delta, gamma, theta, vega, and rho, along with their practical implications. Additionally, the document highlights the expertise of Rajandran, the trainer and co-creator of AlgoMojo, who has extensive experience in trading and technical analysis.
Introduction to Option Greeks
- 1. Introduction to Option Greeks OPTION HYDRA 2.0 – PREVIEW WEBINAR
- 2. Trained more than 1000+ Professional traders on Market Profile, Orderflow & Amibroker Trading System Development and Automation TRAINER Derivative Trader. Mostly Index Futures & Option Trades ranging from Scalping/ Intraday / Short term Trades. Hedged Stock Futures trades (Positional Trading) NATURE OF TRADING Trade mostly index/stock futures/option instruments. Trading/Investing since 2006. Wrote 3200+ articles since 2007 about various technical analysis topics TRADING Use Ninjatrader 8 (Bell TPO) for Orderflow & Market Profile studies and Amibroker for Trading Systems SOFTWARES Market Profile, Order flow analytics, Trading System/Indicator Development, Automated Trading EXPERTISE Twitter : @marketcalls_ Telegram : @marketcalls_in COMMUNICATION Rajandran – Your MentorFounder – Marketcalls & Co-Creator - Algomojo
- 3. Agenda? 1. How Option Pricing Works? 2. Understanding the Premium? 3. Understanding the Black-Sholes Model 4. Option Greeks 5. How to Apply Option Greeks Practically How to use Options Greek Calculator How to Prepare for Next Week for Nifty and Bank Nifty (Short term Market Outlook)
- 4. Option Chain
- 5. What is a Option Pricing Model? Option Pricing Models are mathematical models used for valuing the options premium. Option Pricing Models Binomial Model Two Period Multi Period (American Options) Black and Scholes Model (European Options) Black 70 Model
- 6. Option Pricing Intrinsic Value Spot Price Strike Price Extrinsic Value Time to Expiry Volatility Rate of Interest
- 7. Intrinsic Value Built-in value of an option Only increases or decrease when the underlying stock increase or increase Intrinsic value is not affected by time to expiration On the day of expiry option pricing will have only intrinsic value
- 8. How to Calculate the Intrinsic Value of the Stock? Call Option Intrinsic Value Intrinsic Value = Actual Stock Price – Option Strike Price Put Option Intrinsic Value Intrinsic Value = Option Strike Price - Actual Stock Price
- 9. Option Greeks Delta – Speed/Direction Gamma – Acceleration Theta – Time Decay Vega – Volatility Rho – Interest Rate
- 10. Option Greeks Delta (Direction) - It is the rate of change of the option price in comparison with the underlying stock price. Gamma (Acceleration) – It is the rate of change of Delta. It reflects the change in delta for every 1 point movement in the stock price. Theta (Time) - it refers to the rate at which the option loses its value. It measures the time decay in options with the passage of time Vega (Volatility) - It is the change in the options price in relation to the change in volatility of the stock price Rho (Interest Rate) – It measures change in options price relative to the change in the risk free interest rate of the country.
- 11. Greeks of Call Option
- 15. Option Greeks : Delta Delta is the amount of an option price is expected to move based on Rs 1 move in the underlying stock/index It measures the speed of the option price Calls have positive delta between 0 and 1 Puts have negative delta between 0 and -1
- 16. Option Greeks : Gamma Gamma is the rate of change of delta based on Rs 1 change in underlying stock price/index Gamma is the speed of change at which option price can accelerate High Gamma : Higher Acceleration in Option Price Lower Gamma : Lower Acceleration in Option Price Gamma increases during expiration.
- 17. Option Greeks : Theta Decay of the options price with the passage of one day , all else equal Theta decreases for OTM at expiration Theta increases for ATM at expiration
- 18. Option Greeks
- 19. Questions?
- 20. Thanks!