Comment on Application of Option Greeks

Karthik Rangappa commented on 19 Jun 2017, 11:31 AM

Hi Sunny,

Glad you liked the article.

1A – There is nothing like a right strike. This really depends on the situations and how the greeks move. Your trading strategy should adapt to these variables.
1B – Yes, when you do vol arb, you got to delta hedge… and for this you may have to slice the orders based on the deltas. The right way is to always sell the strike at higher vol and buy the one with lower vol. So given this, the strikes should be independent of this.
2A – As I mentioned above, the selection of strikes should not be pre decided, it should occur naturally as the situation in market demands. You may want to take a look at volatility cone for selecting strikes.
2B – If you adopt to selecting strikes based on high and low vol, then there is no question of the difference between strikes, it will be a natural outcome.

I’m happy to note that you have a realistic expectation – 1.75% is frankly a decent return expectation.

Good luck and all the very best.

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