One of the best ways to get a quick overview of your portfolio is to use “The Greeks”, which includes Delta, Gamma, Theta, and Vega.
Now, if this all sounds “Greek” to you, don’t worry. This article will give you a little overview and help you understand how each of these indicators affects your positions.
Of these four indicators, Delta and Vega are the most important. Delta is a measure of how a one-dollar change in price of the underlying stock will affect the option. It’s important to keep this variable neutral and make adjustments if Delta is large. Adjustments are necessary when Delta becomes large, as you can lose money quickly if Delta moves the wrong way.
Vega is an indicator of how much option prices will change in value due to a change in volatility. Simply put, Vega is a measure of fear. As volatility increases, so will the number of puts. An increase in puts shows that there is an increase in fear about the volatility of the market. Vega will always be displayed as the opposite of actual market activity. If you want the market to go down, you want a long Vega and vice versa. Any change in Vega can affect your income. The key here is to learn how to adjust your positions to keep Vega and Delta neutral. By making adjustments you maximize your profits and increase your ability to build wealth.
Why are these two indicators so important? Because they can indicate something is wrong with your positions. You must monitor Delta and Vega closely in order to know when to make adjustments. However, there are also other indicators that you need to monitor, as well.
Gamma is a measure of the change in Delta. This is not a direct variable for the price of options, but a measure of how a change in Delta will affect your positions. You want your Gamma to stay positive, if it's not you need to adjust so you keep Gamma positive all the time.
Theta is a measure of how much an option loses value the closer it gets to its expiration date. This is how you make consistent money on options. 99 % of traders don't know how to adjust their positions to have a 80% probability of making a profit on each trade.
Are you trading actively right now? Are you happy having 3 winners out of 10 trades or are you able to have 5 winners out of 10. By using "The Greeks" and learning how to adjust your positions you can increase the probability of making profitable trades to 8 winners out of 10. One of the reasons why people often lose money when trading is because they lock in their position without doing any adjustments. They just take their losses or profits and simply move on to the next trade.
The Secret Trading System will show you how to monitor your positions using "The Greeks" and how to keep Theta positive through adjustments to your positions. This will dramatically increase your ability to generate a consistent monthly income by trading options and stocks. If you are new to trading, don't be intimidated by the lingo. The Secret Trading System takes you through from beginning with easy to follow training videos. You can get access to 7 free training videos if you enter your name an email in the sign up form on the right of this screen.
