More Greeks

Republicans play financial Russian Roulette over a possible default and the market pukes. Republicans start to act like responsible politicians and the market soars. Pretty obvious connection, wouldn't you say?

And, enough of that on this Friday morning. Today I'll finish with the last of the standard measures of option risk, commonly known as the Greeks.

Theta: Theta is the option's sensitivity to time. It is a direct measure of time decay, giving us the dollar decay per day. This amount increases rapidly, at least in terms of a percentage of the value of the option, as the option approaches expiration. The greatest loss to time decay is in the last month of the options life. Having a total positive Theta means time decay works in your favor while a negative Theta means the clock is working against you. The total Theta of your position theoretically indicates the amount of money you make or lose in time decay per day.

Vega:  Vega is the option's sensitivity to changes in implied volatility. A rise in implied volatility is a rise in option premiums, and so will increase the value of long calls and long puts. Vega increases with each expiration further out in time.
 

Rho:  Rho is the option's sensitivity to changes in interest rates. The total Rho in your position indicates your total interest rate exposure. This was a much more important indicator back in the days of double digit interest rates.

As a market-maker I always tried to have a near neutral Delta, kept my Gamma small and wanted a positive Theta so time was on my side. I spread my Vega by being short the near term options and long the farther out. Rho only mattered i





 

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Top 5 Penny Companies To Buy Right Now

Posted-In: Markets

Originally posted here...

  Around the Web, We're Loving... Learn to Use Trading Platforms Like Hedge Fund Traders do Rumsfeld: Denial of Benefits to Fallen Soldiers' Families 'Inexcusable' Come See How the Pro's Trade in this Exclusive Webinar Facebook, Baidu Lead Big Caps Beating Shutdown What Should You Know About AMZN? Most Popular iPad 5 Rumor Roundup Official iPad Mini And iPad 4 Price Cuts Coming From Apple Rumor: Apple Selects iWatch, 12-Inch iPad Supplier Low-Cost iMac and a Scary Chart Top Apple's Weekend News Earnings Expectations For The Week Of October 14: Financials, Tech and Consumer Goods Another Acquisition for Yahoo! (YHOO) Related Articles () TheStreetSweeper Says Warned Investors about Coronado Biosciences Months Ago Savient Pharmaceuticals Files Voluntary Chapter 11 Proceeding EPO Issues Decision on Universal Display's Iridium L2MX Composition Patent Benzinga's M&A Chatter for Monday October 14, 2013: Merck, Endocyte Report Vintafolide-PLD Generaly Well Tolerated, Showed Median PFS of Five Months Portola Pharma Issues Results for First Phase 2 Trial Showing Extended Duration Infusion with PRT4445 View the discussion thread. Partner Network #marketfy-ae-block { display: none; border: 2px solid #0a3f75; overflow: hidden; width: 300px; height: 125px; text-align: center; background-color: #45719E; position: relative; z-index: 1; } #marketfy-ae-block a { display: block; width: 300px; height: 125px; position: relative; z-index: 2; color: #ffffff; text-decoration: none; } #marketfy-ae-block-countdown-text { color: #f9fc99; padding: 0px 0 0 0; font-size: 19px; font-weight: bold; line-height: 19px; } #marketfy-ae-block-countdown-text-start { font-size: 12px; } #marketfy-ae-block-countdown { padding: 5px 0 5px 0; font-size: 26px; } #marketfy-ae-block-signup { padding: 5px 47px; } #marketfy-ae-block-signup:hover { background-color: #457a1a; } #marketfy-ae-block #marketfy-ae-block-logo { display: block; padding: 3px 0 0 0; margin: 0; } #marketfy-ae-block-logo { text-indent: -9999px; } #marketfy-ae-block-free { display: block; position: absolute; top: 7px; right: -23px; width: 80px; height: 16px; line-height: 16px; text-align: center; opacity: 1; -webkit-transform: rotate(45deg); -moz-transform: rotate(45deg); -ms-transform: rotate(45deg); transform: rotate(45deg); font-size: 13px; font-weight: normal; color: #333333; background-color: yellow; z-index: 500; text-shadow: 1px 1px #999999; } #marketfy-ae-block-arrow { position: relative; width: 60px; height: 60px; z-index: 10; margin: -80px 0 13px -21px; } #marketfy-ae-block-arrow img { height: 60px; width: auto; } Marketfy's International
Traders & Investors Summit Register for this FREE Event! Hosted by Marketfy Get Benzinga's News Delivered Free