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Portfolio Management | The Greeks

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

On this episode of “tasty BITES,” Tom Sosnoff and Tony Battista explain the "Greeks" for smaller accounts ($2500 - $25000). Tom and Tony explain how delta and theta play an important role in risk management of our trades and our overall portfolio. Regardless of the size of your account, a basic understanding of these metrics is essential for successful trade management.

DELTA

Delta is one of the most commonly used greeks. Effectively, delta is referring to a change in price given a $1 change in the underlying. We can see the delta of an option by using the table page on Dough.

THETA

Next we turn our attention to the greek known as theta. This tells us the time value and the rate of decay we can expect to see in an option. Short premium portfolios will benefit from the collection of positive theta whereas the opposite is true of long premium.

Tom explained that delta on futures were different because they have a different multiplier. Tom and Tony showed how to use delta to determine one and two standard deviation moves. Tom commented on the greeks and said, "We can't possibly absorb all the greeks, all the portfolio management rules, but what we can do is understand what is necessary."

Tom and Tony showed that we can use the greek metrics delta and theta to give us a sense of how our trades will be affected given a change in price and time. These tools can help us manage individual trades and overall portfolio risk.

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