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⚖️OPTIONS TRADING: What are the Greeks?The Greeks are a set of mathematical measures used in options trading to assess and quantify various factors that influence the price and behavior of options. 📌 VEGA : Vega is a measure of how much an option's premium will change in response to a 1% change in implied volatility. Implied volatility represents the market's expectation of the underlying security's future movement. When implied volatility is high, options tend to be more expensive, and when it is low, options are cheaper. Vega is particularly influential for options with longer expiration dates, as volatility has a greater impact on their prices. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Essentially, Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌GAMMA Gamma, represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For instance, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌THETA Theta represents the theoretical daily decay of an option's premium, assuming all other factors remain constant. As time passes, options gradually lose value, and this loss is known as time value decay. The decay of time value is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially those near-the-money, tend to have higher Theta because there is greater urgency for the underlying asset to move in a favorable direction before expiration. Theta is negative for long (purchased) positions and positive for short (sold) positions, regardless of whether the option is a call or a put. 📌RHO Rho measures an option's sensitivity to changes in the risk-free interest rate and is expressed as the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌DELTA Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, where 0 indicates minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Education
by QuantVue
9
NVDA Melt UpThe Play NVDA experiencing a surge in stock price since October 2022. On Monday 5/15/2023, call options @ $282.50 strike were trading between $2.80 - $3 mid-morning. Fast forward to the end of regular market trading today, Thursday 5/18/2023 call options @ $282.50 strike are trading around $32. $3 to $32 - Is there more room to run?! Let me pull out the crystal ball & shine it up a bit. The widening SMAs (20/200) are definitely suggesting a natural pull-back. Furthermore, I think it's important to ask the question - what happens after a melt-up? The Play is to trade the technicals long until a clear sign of pullback or reversal. Cut losses quickly - Ciao! Reasons to Buy: Highlights NVIDIA is a cash-rich company with a strong balance sheet. As of Jan 29, 2023, nearly $13.3 billion in cash equivalents well-covering the $9.7 billion in debt. NVIDIA’s GPUs are rapidly benefiting from the proliferation of AI. By applying its GPUs in AI models, the company is expanding its base in other untapped markets like automotive, healthcare, and manufacturing, which will support its earnings and revenues. Reasons to Sell: Highlights The United States and China’s tit-for-tat trade war is a major threat to the company. This is because the United States is the largest semiconductor manufacturing country with China being its biggest importer. The competition between NVIDIA and AMD has taken a meaningful turn. Previously, NVIDIA and ATI made graphics chips for the PC market. Later AMD acquired ATI and combined the CPU and parallel graphics chip into a single component. AMD is now making an effort to strengthen its position in the commodity graphics segment and CPUs for console gaming systems. The acquisition of Xilinx by AMD has posed a new competitive challenge for NVIDIA in its fast-growing data-center chip market. With around 69% of sales derived from foreign sales (outside the US) any unfavorable currency fluctuation & uncertain macroeconomic environment may moderate the company’s growth. Things to look out for Continued melt-up followed by a meltdown. About the company NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence (AI) based solutions that now support high-performance computing (HPC), gaming, and virtual reality (VR) platforms.
NASDAQ:NVDA
by KyleUSA
Chop or Pop? Tackle This Week's Tricky Market On $ES_F & $SPYIntraday Update Coming into this week, ES tested support at 4112 Friday with a double bottom. So far it’s been a choppy start to the OPEX week, with key support at 4132-29. There have been six round trips between ~4150s and 4120s, and we observed good follow-through in the market. 4155 just rejected down to 4136. Last Week We saw the market consolidating with 4165 resistance and 4115 support, as well as range expansion and complex trading patterns. The big picture context is a 1.5-month-long "megaphone" pattern, while the shorter term shows a smaller megaphone pattern with a 60% upside breakout bias. We also discussed the importance of level acceptance and not trading constantly in our trade recap. Plan for the Week Our focus this week is on navigating a tactical chop range between 4112 and 4181. The bull case for Monday is to defend 4129 and aim for 4145, 4158, and high 4170s. The bear case for Monday involves a loss of 4129 as the first warning, with a crack of 4112 for a real selloff. Expect tactical, trappy trading overall. Economic Events April Retail Sales: A potential downside surprise may affect rate pause and rate cut expectations. April Industrial Production: Expected to be flat; a higher-than-expected reading may support the Fed's hawkish stance. May Philadelphia Fed Manufacturing Survey: An above-expectations reading is seen as inflationary. Bonds Update 2-year Treasury yield at 4%, little changed 10-year Treasury yield advanced to 3.494% 30-year Treasury yield climbed 5.5 basis points to 3.831% Support Levels 4129-32, 4118 (major), 4112 (major - broadening formation support), 4106, 4099 (major), 4089, 4078-81 (major), 4061, 4040-4045 (major), 4031, 4017-20 (major), 4005, 3980-85 (major), 3967 (major), 3950-54, 3937 (major). Resistance Levels 4147, 4158 (major), 4172-75 (major), 4180, 4191 (major), 4205, 4212, 4217, 4227 (major), 4236 (major - broadening formation resistance), 4243, 4252, 4270-75 (major), 4286. 4158 as well as 4172-75 are decent zones to look for reactions as is 4191. Summary In summary, the market experienced consolidation and complex trading patterns last week. This week, our focus is on navigating the tactical chop range between 4112 and 4181, with both bull and bear case scenarios in play. Economic events, such as April Retail Sales and Industrial Production, may impact decisions on rate pauses and cuts. Disclosure: This is not financial advice and is for informational purposes only. Please consult a professional financial advisor before making any investment decisions.
CME_MINI:ES1!
by spytradingpro