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April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Gamma Trade Options Gamma Trade Options With John NettoWith John Netto
John Netto John Netto Chief Investment StrategistChief Investment Strategist
NetBlack Capital, LLCNetBlack Capital, LLCCommodity Trading AdvisorCommodity Trading Advisor
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
DisclaimerDisclaimerAll of the foregoing is commentary for informational All of the foregoing is commentary for informational purposes only. All statements and expressions are the purposes only. All statements and expressions are the opinion of John Netto and are not meant to be a opinion of John Netto and are not meant to be a solicitation or recommendation to buy, sell, or hold solicitation or recommendation to buy, sell, or hold securities. The information presented herein and on our securities. The information presented herein and on our related web site has been obtained from sources related web site has been obtained from sources believed to be reliable, but its accuracy is not believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptionsguaranteed. Estimates, assumptions
and other forward-looking information are subject to the and other forward-looking information are subject to the limits of forecasting. Actual future developments may limits of forecasting. Actual future developments may differ materially due to many factors. Futures and differ materially due to many factors. Futures and options trading involves substantial risk and is only options trading involves substantial risk and is only appropriate for those who have risk capital to trade.appropriate for those who have risk capital to trade.
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
BackgroundBackground
President of One Shot – One Kill President of One Shot – One Kill Trading, LLCTrading, LLCAuthor of “One Shot – One Kill Author of “One Shot – One Kill Trading” (McGraw-Hill, 2004)Trading” (McGraw-Hill, 2004)Chief Investment Strategist Chief Investment Strategist NetBlack Capital, LLCNetBlack Capital, LLC
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Questions for the classQuestions for the class
How many people currently trade How many people currently trade options on stocks?options on stocks?
How many people currently trade How many people currently trade options on futures?options on futures?
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Class objective:Class objective:
Provide an introduction to the Provide an introduction to the concepts and strategies of concepts and strategies of options trading.options trading.
Understand the components and Understand the components and nomenclature that makeup of nomenclature that makeup of options futuresoptions futures
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Outline of PresentationOutline of Presentation Basic Option ComponentsBasic Option Components Background of the GreeksBackground of the Greeks Using Options Software TWSUsing Options Software TWS Mindset When Placing an Options Mindset When Placing an Options
TradeTrade Review of Major Market Options Review of Major Market Options
Prices and Possible StrategiesPrices and Possible Strategies
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Options Trading: The ConceptOptions Trading: The Concept
The process of defining the risk The process of defining the risk metrics behind one’s exposure to the metrics behind one’s exposure to the market.market.
Performed through the purchase or Performed through the purchase or sale of a call, put, or combination sale of a call, put, or combination thereof, using the same or different thereof, using the same or different strike prices and datesstrike prices and dates
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Options Trading: The BenefitsOptions Trading: The Benefits
Compartmentalization of riskCompartmentalization of risk Ability to withstand/potential to profit Ability to withstand/potential to profit
from larger than anticipated from larger than anticipated variancesvariances
Maintain dynamic trading nature Maintain dynamic trading nature irrespective of underlying movement irrespective of underlying movement
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
CallsCalls PutsPuts Strike PriceStrike Price Implied VolatilityImplied Volatility Expiration Month Expiration Month Intrinsic ValueIntrinsic Value Tick ValueTick Value
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
CallsCalls– Gives the buyer the right, but not the Gives the buyer the right, but not the
obligation to purchase on or by a certain obligation to purchase on or by a certain date at a specified pricedate at a specified price
– Long a call is a bullish positionLong a call is a bullish position– Short a call is a bearish positionShort a call is a bearish position– Long a 110 February Yen Globex Call Long a 110 February Yen Globex Call
gives me the right to purchase Yen gives me the right to purchase Yen Futures at 110 on or before Feb 6Futures at 110 on or before Feb 6
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
PutsPuts– Gives the buyer the right, but not the Gives the buyer the right, but not the
obligation, to sell the underlying by a obligation, to sell the underlying by a certain date at a specified pricecertain date at a specified price
– Long a put is a bearish positionLong a put is a bearish position– Short a put is a bullish positionShort a put is a bullish position– Long a 108 Feb Globex Put gives me the Long a 108 Feb Globex Put gives me the
right to sell Yen Futures at 108 a on or right to sell Yen Futures at 108 a on or before Feb 6before Feb 6
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
Strike PriceStrike Price– The price at which one may purchase or The price at which one may purchase or
sell the underlying vehiclesell the underlying vehicle– On calls, the lower the strike the more On calls, the lower the strike the more
valuable the optionvaluable the option– On puts, the higher the strike, the more On puts, the higher the strike, the more
valuable the optionvaluable the option– Looking to buy 10 of the Sep 91 Swiss Looking to buy 10 of the Sep 91 Swiss
Franc CallsFranc Calls
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
Implied Volatility- (IV)Implied Volatility- (IV)– Perception of the future standard deviation of Perception of the future standard deviation of
the underlyingthe underlying– The higher the implied vol, the greater the risk The higher the implied vol, the greater the risk
premiumpremium– The lower the implied vol, the lower the risk The lower the implied vol, the lower the risk
premiumpremium– Higher volatility is associated w/ greater riskHigher volatility is associated w/ greater risk– Implied Vol on Gold is around 37Implied Vol on Gold is around 37– Implied Vol changes depending on month and Implied Vol changes depending on month and
strikestrike
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
Expiration MonthExpiration Month– Days Until Expiration (DTE)Days Until Expiration (DTE)– Plays upon the time component of an Plays upon the time component of an
options value (Theta)options value (Theta)– Owning Feb 900 Gold Puts gives me the Owning Feb 900 Gold Puts gives me the
option to sell at 900 on or before option to sell at 900 on or before January 27, 2009January 27, 2009
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
Intrinsic ValueIntrinsic Value– The value of the option if it expired The value of the option if it expired
immediatelyimmediately– Canadian Dollar 82 Calls with 6C trading Canadian Dollar 82 Calls with 6C trading
at 8224 has 24 ticks of intrinsic valueat 8224 has 24 ticks of intrinsic value– In-The-Money (ITM) In-The-Money (ITM) – At-The-Money (ATM)At-The-Money (ATM)– Out-of-The-Money (OTM)Out-of-The-Money (OTM)
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Basic Option ComponentsBasic Option Components
Tick Value of the option matches the Tick Value of the option matches the tick value of the underlyingtick value of the underlying
Euro FX options have tick value of Euro FX options have tick value of $12.50$12.50
Euro FX moves from 139.50 to Euro FX moves from 139.50 to 139.70 equals 20 tick move or $250139.70 equals 20 tick move or $250
Euro FX Jan 139.00 call moves from Euro FX Jan 139.00 call moves from 95 to 105, a 10 tick move, or $125 95 to 105, a 10 tick move, or $125
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background of the GreeksBackground of the Greeks
DeltaDelta GammaGamma ThetaTheta VegaVega
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background of the GreeksBackground of the Greeks
DeltaDelta– The ratio comparing the change in the The ratio comparing the change in the
price of the underlying asset to the price of the underlying asset to the corresponding change in the price of the corresponding change in the price of the optionoption
– For example, a call with a delta of .55 For example, a call with a delta of .55 would see the option rise 55 cents for would see the option rise 55 cents for every dollar the future roseevery dollar the future rose
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
DeltaDelta
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background on the GreeksBackground on the Greeks
Vega - Measures impact of a Change Vega - Measures impact of a Change in Volatilityin Volatility– The amount the option price changes w/ The amount the option price changes w/
a 1% change in volatilitya 1% change in volatility– Can increase or decrease w/o a change Can increase or decrease w/o a change
in the underlying pricein the underlying price– Vega of -81.90 means call will lose 8 Vega of -81.90 means call will lose 8
ticks for every 1% drop in implied ticks for every 1% drop in implied volatilityvolatility
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
VegaVega
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background of the GreeksBackground of the Greeks
ThetaTheta– Theta measures the rate of decline of time-Theta measures the rate of decline of time-
premium resulting from the passage of time.premium resulting from the passage of time.– Option premium that is not intrinsic value will Option premium that is not intrinsic value will
decline at an increasing rate as expiration decline at an increasing rate as expiration nears.nears.
– Calls on USA (30 Year Bonds) decline at theta Calls on USA (30 Year Bonds) decline at theta rates of T+6 at .20 cents, T+14 at .45 cents, rates of T+6 at .20 cents, T+14 at .45 cents, and T+20 (expiration) at .75 centsand T+20 (expiration) at .75 cents
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background of the GreeksBackground of the Greeks
ThetaTheta
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
ThetaTheta
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Background of the GreeksBackground of the Greeks
GammaGamma– The rate of change for delta with respect to the The rate of change for delta with respect to the
underlying asset’s price. (usually 1%)underlying asset’s price. (usually 1%)– Gamma shows how volatile an option is Gamma shows how volatile an option is
relative to movements in the underlying asset. relative to movements in the underlying asset. Watching your gamma will let you know how Watching your gamma will let you know how large your delta (position risk) changes. large your delta (position risk) changes.
– First derivative of the delta, used when trying First derivative of the delta, used when trying to gauge price of option relative to the amount to gauge price of option relative to the amount it is in or out of moneyit is in or out of money
– Options deep in or out of money experience Options deep in or out of money experience nominal gamma change, at-the-money see nominal gamma change, at-the-money see greatestgreatest
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Gamma GraphGamma Graph
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
One Shot – One Kill Trading Products & Services One Shot – One Kill Trading Products & Services [email protected]@osoktrading.com
Trading Conference ScheduleTrading Conference Schedule– New York Traders Expo (Feb. 21-New York Traders Expo (Feb. 21-
23)23) One Shot – One Kill Trading BookOne Shot – One Kill Trading Book Options Trading WebinarOptions Trading Webinar SniperScope – Live Trading RoomSniperScope – Live Trading Room Live Hedge Fund Trade AlongLive Hedge Fund Trade Along
– March 4-6, (8 AM – 5 PM)March 4-6, (8 AM – 5 PM)
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Trading Conference ScheduleTrading Conference Schedule
New York Traders Expo: Feb. 21-23New York Traders Expo: Feb. 21-23CME Group Panel (Ask the FOREX CME Group Panel (Ask the FOREX
Experts)Experts)Panel on “Going Pro: Using Your Panel on “Going Pro: Using Your
Trading Success to Start Your Own Trading Success to Start Your Own Hedge FundHedge Fund
Live Hedge Fund Trading Tactics Live Hedge Fund Trading Tactics Unplugged Unplugged
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
SniperScope Live Trading RoomSniperScope Live Trading Room
SniperScope – Live Trading RoomSniperScope – Live Trading Room– Real Time Positions, Working Real Time Positions, Working
Orders, Profit and Loss Orders, Profit and Loss Statements, Trade Confirms Statements, Trade Confirms
– Charts, Analysis, Trader Charts, Analysis, Trader Commentary, NewsCommentary, News
– ($395 a month)($395 a month)– Free one-day pass on Thursday, Free one-day pass on Thursday,
Jan 15 – Jan 15 – [email protected]@osoktrading.com
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
WebinarWebinar
Options Strategies for a Volatile MarketOptions Strategies for a Volatile Market– Dynamic strategies for 2009 (spreads, Dynamic strategies for 2009 (spreads,
position management, market outlook, position management, market outlook, volatility compression/expansion etc.)volatility compression/expansion etc.)
– Equities, Fixed Income, Energies, Equities, Fixed Income, Energies, Currencies, MetalsCurrencies, Metals
– Saturday, January 24, 10 am ET – 1 PM ETSaturday, January 24, 10 am ET – 1 PM ET– sign up of $79 if you sign up by January 12, sign up of $79 if you sign up by January 12,
otherwise $99otherwise $99– [email protected]@osoktrading.com
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Trading WorkshopsTrading Workshops
Live Hedge Fund Trade Along -Live Hedge Fund Trade Along -– Wed. Mar 4 – Fri. Mar 6 (8 AM – 5 PM)Wed. Mar 4 – Fri. Mar 6 (8 AM – 5 PM)– Full multi-monitor computer setup, high Full multi-monitor computer setup, high
speed internet, data, trading accessspeed internet, data, trading access– Hosted at NetBlack Capital’s office in Hosted at NetBlack Capital’s office in
Manhattan Manhattan – Cost – Normally $4,500 reduced to $2,500 Cost – Normally $4,500 reduced to $2,500
(sign up by Jan 12 only $1,950)(sign up by Jan 12 only $1,950)– Limited to six peopleLimited to six people– 650-589-3450 for more info650-589-3450 for more info
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Current Options Prices and Market Current Options Prices and Market ViewsViews
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Preview of Part IIPreview of Part II
Synthetic Calls/Puts Synthetic Calls/Puts StraddlesStraddles StranglesStrangles Calendar SpreadsCalendar Spreads CollarsCollars Call Spreads and Put SpreadsCall Spreads and Put Spreads
Options Strategies
April 8, 2023April 8, 2023 WWW.OSOKTRADING.COMWWW.OSOKTRADING.COM
Review of PresentationReview of Presentation
Basic Option ComponentsBasic Option Components Background of the GreeksBackground of the Greeks Using Options SoftwareUsing Options Software Placing an Options TradePlacing an Options Trade Key Options Prices in MarketKey Options Prices in Market