Beware The Greeks by Ron Ianieri
Confused about option greeks?
Find out what each means and
how they affect price movement.
IN recent months, individual
have been flocking
to the option
market in record numbers and with good reason.
When used properly, options
give the investor many advantages
over simply using the underlying
instruments such as
stocks. The mad rush into the
option market is likely to continue
as the popularity of options
grows and expands.
Several recent news announcements
have helped investors realize
the truth about options. The
first big news is that the NASDAQ
is going to list options! That’s
right, the powerful NASDAQ is
going into the option market because
it recognizes the investment
legitimacy and future of options.
On top of that, the NASDAQ petitioned
the SEC to allow options to
trade in pennies. This makes options
more economically attractive
to investors. Finally, the SEC
is starting to lighten up the margin
requirements for option positions,
making options even
At this point you are probably
thinking that options sound
too good to be true. However,
options do have a drawback.
Options are a more sophisticated
product than their underlying
instruments. Being more sophisticated, they have many more topics and concepts
that must be mastered in order to use their power properly.
With options, as with any other highly technical vehicle,
a solid foundation is the key to understanding.
One of the foundational concepts of options is the “greeks.”
There seems to be confusion about how greeks should be
approached and taught, if at all. Many option instructors consider the greeks to be an advanced topic, so they schedule
it last. Some instructors consider the greeks to be unimportant
and not only don’t teach them, but tell their students to ignore
them as useless concepts. We see the greeks as a necessary
concept that should be stressed and taught first, even before