Higher order Greeks are an essential part of options trading and analysis. The fact is, lower order Greeks such as deta, theta & vega can be managed by higher orders, but the average options trader does not have the knowledge or tools to do so.
A Full Suite of Higher Order Greeks Tools
OptionColors offers clients a full suite of the most important higher order Greeks via various charts, making their usage very intuitive. Along with the visuals, we provide clients with instructional videos on the tools.
Every options trader should analyze their positions with higher order Greeks. Software without this level of risk management puts traders at a huge disadvantage.
OptionColors has included higher order Greeks in its application for nearly a decade now, giving us time to refine our tools, to provide clients with easy-to-understand charting, even though the concepts are very deep.
An Example of Managing Vega
Profits and losses are made from volatility changes, which is directly correlated to one’s vega position. Vega is managed by higher Greeks such as vomma and vanna. If a trader does not know how to manage vega, then they are at risk to potential volatility changes, instead of putting these changes to their own advantage.
A great example is the short strangle strategy. Most options traders do not know that it comprises poor vanna and vomma attribues, 2 critical components that severely affect the vega position. The vega position of the short strangle is very dangerous to options traders, but without awareness of the higher order Greeks involved, options traders are putting themselves in harms-way. Unfortunately, this leads to many margin calls and account blow-ups.
In a nutshell, here’s what happens to a short strangle when volatility increases. The negative vega position, already exposed to an increase in volatility, quickly gets worse (becomes more negative), losses snowball, margins increase (when trading portfolio margin) and ones account is often-times wiped out instantly.
OptionColors propels traders to higher levels, helping them develop to their maximum potential as an options trader. Options traders should be using higher order Greeks when they trade. The concepts are a bit complex, but so are options. It comes with the territory.