SPY Options talk
Well looks like every chart you can think of up, down and side’s ways has been made already. I still believe we stay in the highlighted box in till CPI comes out so you know the saying trade what’s in front of you.
Now let’s go over options and the Greeks how do the effect your contract and why are you losing money even if it’s going in your direction.
DELTA= is the name used to measure the change in a contract for every dollar it moves up or down. Puts have a negative delta because they have a negative relationship to the security. The higher the delta the more expensive it will cost you, if the delta is .20 it means there’s a 20% chance it will close in the money ITM same as a .95 delta means 95% chance of ITM on 0dte day. So let’s say you buy a contract for 1.00 and delta is .25 if your underlying stock close up 1 hole dollar your contract will be 1.25 BUT if it goes down 1 hole dollar the contract will be 0.75. Delta is also effected by Gamma and implied volatility which is why we make more money
GAMMA= measures the rate of change for delta every 1 buck move so above I used a .25 move for delta let’s say gamma is .5 well the 1 dollar move will be a total of .30. A gamma squeeze is when the underlying security moves up very quickly in a short period of time. Gamma is the highest when it’s at the money ATM. So think of gamma as a addition to the delta
THETA= My favorite enemy since I am a spy trader of options theta is always killing me. Time decay in the value of an option or it’s premiums. As soon as you buy a option the clock starts ticking and the value starts to diminish until it expires worthless OTM because no one will buy it. Let’s say our 1.00 contract has a theta of .5 it will loss 5 bucks everyday, now the closer you get to expiration date the higher the theta will be also counting down the hours and minutes to your 0dte. So our 1.00 contract has a theta of .10 tomorrow our contract will be .90 and so on.
VEGA= measures the Implied Volatility so let’s say the stock goes up 1% on our 1.00 contract we will get .10 move or 1.10 same as if it goes down 1% we would have .90 contract. So IV is tricky, it prices in the expected move of the security say earnings are coming in the IV will be priced same as in spy FOMC days the IV is priced in and you won’t get as much money as you would say on a normal day.
RHO= the one that nobody cares about except for the feds. Represents the rate of change between an option value and a 1% change in the interest rates so ask Powell about this one
Other Greeks that aren’t talked about but do play a factor are lambda, epsilon, vomma, Vera, zomma, and ultima
So when I play options I’m looking to get out as fast as I can, if I buy a 0dte I’m holding for no more than 4 hours. A 1 day contract I get out by the end of the day. 3 day contract a day and a half or sooner. 5 day contract I’m out by 3 days. Why because of theta killing premiums
Now price wise 0dte I’m buying a dollar or 2 OTM. 1 day I’ll go 3 to 4 bucks out. 3 day 4 to 6 out and 5 day 6 to 7 out. I always do 3 contracts to sell 2 and keep 1 as a runner if I go bigger I’ll do the same 10 contracts sell 4 at 50% 4 at 75% and hold 2 as runners always setting stop loss to break even or 10%
I hope this helps and finds you in good health
Now let’s go over options and the Greeks how do the effect your contract and why are you losing money even if it’s going in your direction.
DELTA= is the name used to measure the change in a contract for every dollar it moves up or down. Puts have a negative delta because they have a negative relationship to the security. The higher the delta the more expensive it will cost you, if the delta is .20 it means there’s a 20% chance it will close in the money ITM same as a .95 delta means 95% chance of ITM on 0dte day. So let’s say you buy a contract for 1.00 and delta is .25 if your underlying stock close up 1 hole dollar your contract will be 1.25 BUT if it goes down 1 hole dollar the contract will be 0.75. Delta is also effected by Gamma and implied volatility which is why we make more money
GAMMA= measures the rate of change for delta every 1 buck move so above I used a .25 move for delta let’s say gamma is .5 well the 1 dollar move will be a total of .30. A gamma squeeze is when the underlying security moves up very quickly in a short period of time. Gamma is the highest when it’s at the money ATM. So think of gamma as a addition to the delta
THETA= My favorite enemy since I am a spy trader of options theta is always killing me. Time decay in the value of an option or it’s premiums. As soon as you buy a option the clock starts ticking and the value starts to diminish until it expires worthless OTM because no one will buy it. Let’s say our 1.00 contract has a theta of .5 it will loss 5 bucks everyday, now the closer you get to expiration date the higher the theta will be also counting down the hours and minutes to your 0dte. So our 1.00 contract has a theta of .10 tomorrow our contract will be .90 and so on.
VEGA= measures the Implied Volatility so let’s say the stock goes up 1% on our 1.00 contract we will get .10 move or 1.10 same as if it goes down 1% we would have .90 contract. So IV is tricky, it prices in the expected move of the security say earnings are coming in the IV will be priced same as in spy FOMC days the IV is priced in and you won’t get as much money as you would say on a normal day.
RHO= the one that nobody cares about except for the feds. Represents the rate of change between an option value and a 1% change in the interest rates so ask Powell about this one
Other Greeks that aren’t talked about but do play a factor are lambda, epsilon, vomma, Vera, zomma, and ultima
So when I play options I’m looking to get out as fast as I can, if I buy a 0dte I’m holding for no more than 4 hours. A 1 day contract I get out by the end of the day. 3 day contract a day and a half or sooner. 5 day contract I’m out by 3 days. Why because of theta killing premiums
Now price wise 0dte I’m buying a dollar or 2 OTM. 1 day I’ll go 3 to 4 bucks out. 3 day 4 to 6 out and 5 day 6 to 7 out. I always do 3 contracts to sell 2 and keep 1 as a runner if I go bigger I’ll do the same 10 contracts sell 4 at 50% 4 at 75% and hold 2 as runners always setting stop loss to break even or 10%
I hope this helps and finds you in good health
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