The Greeks are a mathematical means of estimating the risk of stock options. Delta measures the change in the option price due to a change in the stock price, Gamma measures the change in the option delta due to a change in the stock price, Theta measures the change in the option price due to time passing, Vega measures the change in the option price due to volatility changing, and Rho measures the change in the option price due to a change in interest rates. In this article, I will demonstrate one way to access the Greek stats for any option using free online resources. More specifically, in this segment I will use an options calculator provided by iVolatility.com, a company for which I write monthly journal articles (whenever I publish articles or commentary in other financial publications, the information is ALWAYS available on this site first).
The calculator prior to entering information
Highlighted in yellow
- The top box is where the stock ticker is entered and then “go” is clicked
- The remaining three highlighted boxes are where information may need to be changed
Calculations after entering the ticker for Skyworks Solutions
Note the following
- After entering SWKS and clicking on “go” the nearest the money strike ($97.50) and nearest expiration (4 days away) come up automatically
- The Greek stats for both the $97.50 call and puts options are shown on the right side
- Interest rate and dividend information is entered by the calculator
- The green arrows highlight the boxes where we may want to change the input to generate additional information as shown below
Reading the stats for the $97.50 call option (all other factors remaining the same)
- Delta: For every $1.00 change in share price ($97.71), option value ($1.9982) will change by $0.5275
- Gamma: For every $1.00 change in share price, delta will change by $0.0843
- Theta: For every one calendar day that passes, option value will decline by $0.2369
- Vega: For every 1% change in security implied volatility, option value will change by $0.0408
- Rho: For every 1% change in the risk-free interest rate, option value will change by $0.0055
Changing strike price, expiration dates and premium amount
In the screenshot below, we will alter the stock price, expiration date and on the right side bottom, enter a new option premium to get an updated implied volatility stat (click on “calculate” in the middle of the calculator to update information):
Notice that the Greeks changed as we used a different strike price and expiration date. Also, we entered an up-to-date option premium for the $95.00 call option which reflected an implied volatility of 46.35 compared to the 43.45 shown on the right side of the screenshot.
There are many available free online tools for calculating option pricing factors. The calculator provided by iVolatility.com is an outstanding example.
Entering the New York Stock Exchange to participate in the Options All Stars Panel Discussion
- What’s this Blue Collar Investor doing at the New York Stock Exchange?
Next live appearance
Milburn, New Jersey
October 13, 2015
6:45 PM – 8:30 PM
Department of Labor proposed changes to investments in IRAs
As many of you know, the Department of Labor is proposing changes to the types of investments and charges by fiduciaries as related to sheltered accounts. The period for commenting to the DOL on these issues has ended and there has been considerable push back on the proposals especially from brokers and advisers. My sources feel that retail investors will not be impacted as it relates to covered call writing in IRAs although certain costs may be passed on to us. We are expecting to hear back from the Department of Labor some time in the spring. I will continue to update our members as I receive additional information.
Stocks rebounded Friday after US Federal Reserve Chair Janet Yellen implied that rates would likely rise this year and second-quarter US GDP was revised upward to 3.9%. However, major global markets declined for the week as Asian economic reports indicated further weakness. Eurozone data were more positive. This week’s reports:
- Second-quarter US gross domestic product growth was revised from 3.7% to a final annualized rate of 3.9%. Greater gains in consumer spending and commercial and residential construction fueled the upward revision.
- US sales of new single-family homes rose by 5.7% in August to an annual pace of 552,000, the highest level since 2008 and a much larger gain than expected. Sales were 21.6% higher than the previous year.
- US home resales declined by 4.8% to an annual rate of 5.31 million units in August, a steeper drop than expected, but still 6.2% higher than a year earlier
- US durable goods orders fell 2.0% in August, impacted down by a large drop in volatile civilian aircraft orders
- The University of Michigan consumer sentiment index fell to 87.2 in September, the lowest reading since October 2014, from 91.9 in August
- US manufacturing purchasing managers’ index (PMI) was unchanged in September from August’s reading of 53.0, still reflecting expansion but at the slowest pace since 2013. The strong US dollar, weaker demand in many export markets and reduced capital spending in the energy sector are all factors
- Initial jobless claims rose 3,000 to 267,000 for the week ending September 19th
- Continuing claims remained steady at roughly 2.24 million for the week ending September 12th
For the week, the S&P 500 declined by 1.36%% for a year to date return of (-) 6.20%.
IBD: Market in correction
GMI: 0/6- Sell signal since market close of August 24, 2015
BCI: This site remains long-term bullish on our economy but short-term concerned about recent volatility and extreme reaction to market forces. All call options sold for the October contracts are in-the-money and put options sold are deep out-of-the-money.
Wishing you the best in investing,