Jargon Slashing

Option traders, like other professionals, love to use industry jargon. Talking the lingo serves several purposes: it connotes a high level of knowledge and expertise in one’s specific field, it accurately conveys complex concepts in a concise manner, and it just sounds so cool to say things like, “I’m long vol up the ying-yang and bleeding theta,” which basically means one owns options that are suffering from time decay.

The downside of lingo is that sometimes it’s used to purposely conceal the true level of understanding, or is simply a means for the speaker to bolster his self-esteem and get the upper hand in a conversation or negotiation.

This can be very off-putting to the layperson put in the position of deferring to the expert because he is reluctant to ask a stupid question. So with that in mind, while it’s not important to know all the jargon, it is imperative to understand the concepts so as not to make a needlessly costly error.

Or that scalping gamma is a fancy way of saying “I’m trying to buy low volatility and sell higher volatility as the price of the underlying stock moves back and forth within a trading range.”

Some basic concepts of option pricing models such as Black-Scholes and “the Greeks”, especially, delta and theta, mean and how they measure options’ value.

For deeper dives into this, there are plenty of good books out there. One of my favorites on harnessing Vega and Gamma is Options Volatility Trading: Strategies for Profiting from Market Swings by Adam Warner.

A great site for finding and analyzing current and historical volatility, along with an amazing amount of free tools, is http://www.ivolatility.com/

Some of the best option books I’ve ever read come from Charles Cottle, whom I’ve had the pleasure of sharing a panel with on several occasions. His Options Trading: The Hidden Reality blew my mind the first time, and I had to go back and read it again. I still only understand half of what he was saying.

That one will both enlighten and put you to sleep.  Enjoy the weekend.

For some lighter fare, and the best and quickest, and cheapest, way to get an introduction to options trading is through my free e-book The Ultimate Guide to Trading Options. 

If you have topics or questions you’d like me to address in coming weeks, e-mail me at stevesmith@yolopub.com. We can whip up some margaritas and talk about options trading until the sun goes down.

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