BEFORE Trading Options Learn The Greeks !🚀🚀

what's up guys welcome back so yes i called the greeks the cheat code of options the options cheat code and the reason i do so is because you don't necessarily need to understand the greeks to trade options i mean when i first started doing i thought that they were just like a random bunch of numbers like something that like the super geeks thought about and talked about and then i started hearing regular people talk about it too and i'm like wait is this something that i really need to know about and it's just described as me as an opportunity in a way to give yourself an advantage to mitigate risks to make strategies and things like that and i found out that they weren't just random numbers and they're also very very easy to understand and very easy to apply to different options that you might be trading whether you're buying calls and puts or selling them it does not matter we can use the greeks to our advantage and like i said to make a couple extra dollars but even furthermore to protect us against the dangers and the risks of options so this video we're going to talk delta we're going to talk gamma we're going to talk theta vega and even that weird kid down the block that nobody really likes to hang out with row and like i said i'll explain them and apply them to each one of the options and show you how i use them in my everyday trading options strategies so right now if we're looking at this tesla call right and this tesla call right now is eight hundred dollars here right here is the greeks all right now if you're on the app you're going to have to click the bid ask spread it's a blue hyperlink if you're using robinhood or whatever brokerage you're using this is where the greeks will pop up so i'm going to screenshot this and i'll put this into a digital whiteboard and then we could talk about it now each one of these grease guys they have like their specific definition but i think more importantly are the implied things and the theoretical things that these are going to give us that's really where we can use them the technical definitions they really don't mean that much but like i said not that they don't mean that much but they don't really help us it's more the the other things that like the unspoken rules that are really really important and that those are the things i think can really add some value to you in this video first let's talk delta so first the technical definition delta is how much the options value is going to increase or decrease with a one dollar change in the share price so let's break that down and make that a little bit simpler right now we can see that the current premium for this option is 16. and 65 cents and let's say the current share price is 820 what this delta of 0.63 means and guys these are going to be in terms of contracts are 100 shares so this is going to be per share what that means is if this were to go up that means the share price increased one dollar that means the options premium will be affected by this delta so that means that the option price will go up 63 cents and the option will now be worth 8 to 17.28 now this works in reverse as well if the share price went down to 819 then the premium would go down 63 cents so for calls guys delta is going to be anywhere between zero and one and the further we are in the money away from the share price the closer to one we're gonna get we theoretically can't get to one theoretically one is the delta if you own the share and we'll talk about that in one second but delta is going to be between zero and one for puts delta is going to be between 0 and negative 1. and the reason for that is in calls when the price goes up one dollar that's going to be positively correlated to our value but with puts we want the share price to go down okay so as the share price goes down that's going to increase the value of our option so we see this range anywhere from negative one to zero to one and really a rule of thumb guys at the money that's usually going to be a 0.5 delta and and we'll see that and the reasons for that in just a second as well now i mentioned the difference between the textbook definitions and like theoretical things that we know here are some theoretical things that delta tells us so here's one thing i tell people all the time and they just do not understand it's theoretically like owning that amount of shares and here's really what that means you theoretically you can't have a delta of one in a call option but let's just say we did just to prove a point if i had a call option with a delta of one that means that every single time the share price goes up one dollar that means the value of that option goes up one hundred dollars but now let's say i have a call option this call option here with a delta equal to point six three three when the share price goes up one dollar we make 63 dollars so like i said it's like owning the shares because it goes up in value the same amount as if we owned 63 shares of that particular stock so when we say things like oh we use delta to identify roughly how many shares we're leveraging or how many shares we have this is the reason why because as the share price goes up by a dollar delta changes the value by that same exact amount so my leaps video from last week guys i talked about how when i do leaves i like to look for a .7 delta or more if the share price goes up by one dollar the value of my option is going to go up 70 dollars it doesn't go up 100 because i don't technically own the shares but it is like owning 70 of those shares because the response and value is going to be the same now another like rule of thumb that we use delta guys it is roughly equal to the percent chance that this option will become in the money at some point before expiration okay so this is where we can use delta to identify some of the risks that we want to take and this goes back to what i mentioned again and at the money option has a 0.5 delta it has a 50 50 chance of becoming in the money going out of the money or staying right at the mine like it has a 50 50 chance as we go down further in the money right as we go down this way from the share price we know that the likelihood of success is going to be greater and that's why delta increases the further in the money we go so maybe you're new to buying options and you kind of want to dabble you want to try them out you don't want to take on a ton of risk you might go further into the money to say a delta of 0.9 even 0.95 that theoretically is going to give you a little bit of an idea that this has a 95 chance of becoming in the money at some point and i also use this when i'm selling covered calls right i can use this delta as well like if i don't want to get a sign right a covered call is a bearish strategy so what i'm going to do is i'm going to pick a very very small delta which gives the buyer a very very small theoretical chance that this is going to expire in the money so i can sell a covered call with a delta of 0.2 that means that i have an 80 chance that it is going to expire worthless because the buyer only has a 20 chance that it's gonna finish in the money and there's where we kind of can use those rules to help us manage the risks that we are willing to take so maybe you're like a yolo kind of guy and you want to save some money in premiums because premiums are less expensive when you're buying options at the money so you take on the 50 50 chance and you buy an option right at the money personally i don't do it because my risk tolerance is a lot lower so i use delta not only as a way to identify how many shares this is like owning but also the likelihood that i'll end up in the money at some point and because of this positive and negative delta guys this can kind of identify the direction or what we think the market's going to do right if we're selling a lot of positive delta that means we're kind of bullish on the stock market we think the stock market's going to go up where if i have a bunch of negative deltas that means i think that the share prices in the stock market is going to go down so we can use this to kind of identify what type of trader if we're looking from the outside in and looking at people's options so i'm talking about how much delta changes as i approach the money it's not a constant number and you're like okay well how do we identify that we identify that change in delta using gamma so gamma is how much delta changes with a one dollar change in the share price so both gamma and delta they're affected by the share price either going up a dollar or coming down a dollar so once again let's take for example this premium that we have up here of 16.65 it currently has a delta of 0.63 so if the share price goes up one dollar okay so we could see that now it's going to be this it's going to be that's 17.28 but now after that one dollar change the new delta is going to be equal to 0.6333 plus gamma which is going to be .0131 so we could see that now we have six four that is going to be the new delta at this price so essentially what's happening is gamma is accelerating delta it's making it change which could be a good thing it can accelerate the value in our favor but it could also be a bad thing it could also accelerate delta against us and we'll see gamma change also as we approach the money and as we go further away from the money whether that's out of the money or in the money so we have to kind of look at how these two are playing together and this is kind of the reason why you might want to roll an option all right because as we get closer to expiration the difference between gamma now and when gamma is far out of expiration is very very different so we might roll to put some time back on our side and lower gamma just a little bit so that it doesn't accelerate delta and just have our value of our option making these major swings so when i get at the money gamma becomes very very large but as i move away from it what we'll see is that delta will really start to shoot towards one or negative one but then as i get further in the money out of the money what happens to delta is it kind of slows off so if i kind of like kind of just do a rough sketch of that if i had like a delta of one up here and this is at the money and then this is like increasing in the money at the money vegas is going to make delta shoot up shoot up but then it's kind of going to kind of like slope off and never like i said reach one but the further in the money we go the less delta is going to change with the one dollar change in that share price so the next one we're going to talk about is theta probably the most popular one like the theta gang strategies and all that and all theta is is essentially it's pay to play so we've talked on this channel before between the difference between intrinsic and extrinsic value and all theta is is how much your options value is going to decrease every single day because it eats away at the extrinsic value and this is assuming that we keep the share price and implied volatility pretty constant and like i said that's the pay to play this is how much this option is going to cost you in extrinsic value every single day that you hold it and guys theta really ramps out about a month out essentially if we have an option that data is going to kind of decrease decrease when you get to 35 45 days out it's really going to start to ramp up until we get to expiration here and we can see this option is at expiration we'll hop in and look at a couple different expirations and show you the difference but essentially right now this is losing 540 every single day off of this 1665 dollar premium it is just crushing this premium right now so this is where expiration date and choosing options can really really help you like when we're buying options right we want to have a long out expiration because we want to protect we want to play in this zone from here to here where theta is not eating away our premiums if we're selling options right and we're looking to buy to close later we want the value of the option to go down we've already collected the premium so if we're looking to buy to close to lock in some profits we want to buy it for cheaper than we paid for it so we're going to place our options like our covered calls and things like that within 30-45 days so we can have this data really really help us so data's really really good for sellers really really bad for buyers now students in my course and things like that asked me all the time like when does data happen guys there's no like theoretical time it doesn't happen i said we're we're assuming that we keep the price and implied volatility constant which we know does not happen like it's at the end of the day and it's like boop all right there we go i'm going to take that 542 off the premium it kind of just evolves and works itself out with all the other greeks over time so it's not like you have like you have to get your option plays done today because when the bell rings tomorrow all that uh theta is going to be gone there's no specific time it's kind of just how it works in over a 24-hour period like i said assuming that the share price and implied volatility stays the same now speaking now of implied volatility when i see volatility i think vega so vega guys very very very important and remember delta and gamma they deal with a one dollar change this is going to be a one percent change in the implied volatility which is why i kept this up here as well and i've seen implied volatility really really hurt people and vega just crush hopes and dreams because we think when we buy a call and here's back to that cheat code we think when we buy a call if the share price continues to go up the value of the option should go up right because of intrinsic value but this is where vega can really really hurt you because if implied volatility dives right if implied volatility dies that's how much vega is going to hurt you so stocks with high volatilities that can dive out you can lose money even if the share price is going up you can lose money on that option because applied volatility will just dive you might have heard something called iv crush before this really happens around earnings and why it's really really recommended that we don't buy calls before earnings because before earnings volatility is super high and then after the earnings call come out and we get all that information what happens implied volatility just dives and vega just crushes options premiums all right so we really we need to watch that and understand it that if you like say today was a little bit before earnings right this value might be here let's say this implied volatility was 168. well after those earnings calls this could go down 68 now we take this and we say point 15 15 times 68 that's how much your option premium is going to get crushed after earnings please don't buy calls right before earnings guys i beg you and this is it this is how you can lose money on your option even if the share price is going up even if delta's going up because implied volatility i stay away from implied volatility's over a hundred it's just too risky for me like i said i look at 68 that's still even a little high you i think i think right now spy has like a 14 implied volatility so vegas really not going to affect the options premium that much all right and we saw last week with some implied volatilities they go up to three four thousand percent if we get some information and that volatility goes down your option premium is just going to get crushed and it might not ever recover in the time that you have before expiration be careful about vague it's like one of the ones that like people don't know about and i said that iv crush around earnings time that can just destroy people's premiums and you're going to lose out even if the share price continues to climb climb up until expiration the last one here guys row i'm not even going to write it down it doesn't really need to talk about it even from again even if i think if you're a little bit more advanced you really don't even need to worry about row that much it's how much the options value is going to change with changes in percentage interest rates to the treasury bonds like i said that doesn't change very often so this isn't something that's going to affect you on a month-to-month basis so i really i don't even worry too much about row just know that that's the deal with the interest rates of the treasury bonds and things like that let's shoot over to robinhood and see all these things that works at different strikes different expirations and things like that all right so this expiration is literally tomorrow okay it's literally tomorrow so what do we expect we expect a really really high theta it is at the money we expect a delta 50 50 chance of this happening now as i move further away from the money i don't expect vega to change too much theta will change a little bit so will delta and gamma so let's go a little bit here we can see right now 0.53 up to 0.6 we're further in the money data still hurting us because that's mostly going to be time to expiration let's move expiration out one week and see what it does to theta so here's that same 805 strike price 164 dollars every single day and this is only one week out so we can see how significant that one changes 164 if we go back to tomorrow at that same 805 strike we see 500 so 400 per day difference when we do that so let's see how delta changes as i go farther into the money if i get down here we see that we have a delta of 0.97 so the further in the money you go these are things that you're going to look at if i want to sell a covered call say i own some shares i'm going to sell a call i'm right at the money i see once again 50 50 chance even when you're selling the call if i go up to this 825 so now i'm giving myself even more likelihood that this covered call is going to expire worthless i go up here almost 0.2 that's about an 80 chance in my favor okay guys so this is how you are going to use the greeks to help strategize and eliminate some risks if you if you like this presentation guys this is how i break down everything that you have to know if you are a beginner options trader inside my options course i'll leave a link for it down in the description below i'll be 50 off if you use the code options i'll leave all that down there you can see everything from buying calls and puts selling calls and puts the wheel strategy bid ass prices i got everything click the link just look at the description and then you can make the decision i'm just letting you know that it's out there yes i know that you could probably find it and spend hours looking for them in the proper order or you could just take four hours and and watch it all in one spot guys i hope this helped if you have any questions leave them down in the description below if you want me to teach you something else you want me to break down another option saying please let me know you guys helping me this is how i make this content from you guys giving me recommendations and telling me what you want me to explain until i see you guys on the next one stay positive work really really hard always i beg you please be kind to other people hope you have yourself an amazing day an even better tomorrow and oh yeah i just hit 50 000 subs thank you so much guys everybody i appreciate all you watching you really do you make you make my freaking day so thank you 50 000 subscribers couldn't be more pumped about it i hope when we're watching this video in a year i got like 10 million we'll see take it easy guys

Channel: Brad Finn

Views: 96,677

Rating: 4.9758625 out of 5

Keywords: Brad Finn, the wheel strategy, options, trading options, options greeks explained, options delta explained, options gamma explained, options theta explained, options Vega explained, options roh explained, how are the greeks used in options, covered call delta, LEAPS delta, in the money leaps greeks

Id: 4dO3FcOsNwY

Length: 18min 21sec (1101 seconds)

Published: Thu Feb 11 2021