Forget the Greeks: The Only 2 Factors That Matter in Options Investing

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Tobias discussed Forget the Greeks: The Only 2 Factors That Matter in Options Investing. Here’s an excerpt from the episode:

[Tim] So so there’s volatility and there’s time value. And I think that those are two of the most critical elements of options trading. If you’re day trading or trying to be a quant like some of these hedge funds like Jim Simon’s fund or something like that, of course, you know, the mathematical experts are going to are going to dive into all that stuff and go in and out of things.

That’s not what we’re doing. And I feel that a big reason why more investors do not use options, Toby, is because it gets too complicated with how it’s presented to people. So when we talk about volatility, that’s, you know, how much is this stock moving one way or the other.

Often when a stock or a sector or a market is in a major downturn or there’s a lot of upheaval, the perception of of risk as with risk defined as short term market movements, volatility goes up. And so when volatility goes up, the option premiums that we’re able to generate by selling options goes up with that. And so often some of the best opportunities are in extremely volatile markets where people are so worried about what’s going to happen the next day, the next couple of weeks, that that they’re opening up really attractive investment opportunities for someone that’s more long term orientated and who’s tactical, who’s willing to use that volatility to their benefit.

The other major component is theta time value and time value is critical. So there’s different options strategy.