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Binary options greeks are the Greek alphabet letters, usually used to indicate how sensitive the price of an option is to changes in one of its inputs. They are essential for dynamic portfolio management in binary options.
The binary options Greeks covered are:
| Binary Options Greeks | Below Strike | Above Strike |
|---|---|---|
| Binary Call Option Delta | +ve | +ve |
| Binary Put Option Delta | -ve | -ve |
| Binary Call Option Gamma | -ve | +ve |
| Binary Put Option Gamma | +ve | -ve |
| Binary Call Option Theta | +ve | -ve |
| Binary Put Option Theta | -ve | +ve |
| Binary Call Option Vega | +ve | -ve |
| Binary Put Option Vega | -ve | +ve |
There are other Greeks, but they are not as influential as the first four.
These were the Greeks that worried me in the pits and then in front of the (mentally grueling) screens during my 15 years as an options market maker, with Greeks like Rho being of minor importance even when trading STIRs.
Any person can appreciate the fair value and create a two-sided market around it, but the risk management that follows trading separates the professionals from the amateurs.
Many do not understand their Greeks well enough to put on a complicated show and understand how their Greek profiles have evolved. A trader’s confidence in pricing is inevitably affected by his inability to understand his risk profile. For example, an options trader who does not know his delta would be comparable to a futures trader who does not know how many futures he is long or short.
I have been asked countless times what lessons I have taught an options trader who wanted to start trading. The truth is that I have never taught anyone how to trade because I was too busy showing them how to avoid losing money.
See other important articles in my binary options glossary.
