Do I have to be a math whiz to trade options?
I love trading options. But if you haven't tried them, maybe it's because it all sounds so complicated. "Delta," "theta," "gamma," blah, blah. Yeah, the Greeks might be fine and all, but one doesn't necessarily feel like a natural quant-type, and it's all rather confusing.
Here's a secret. you don't actually have to do the math to develop a sense of how options work or how to suss out where things ought to be and are likely to go.
For example, suppose you’re interested in NOW opts for next week. The stock is down 10 points or so today, by the way. Here’s an options chain via barchart.com. Suppose you bought a call near the money at $410. Suppose the stock goes back to $420 tomorrow.
What will the call be worth? Well, you could eyeball it by looking at today’s price on the $400-strike call. The $410 call fetches about $6 more than the $400. So, if the stock moves up $10 tomorrow, then tomorrow’s $410 call might be about $6 higher than today's. And so on. Remember that time decay will change things fast, so this back-of-the-envelope comparison will only work in the very short term. For an idea of what time decay (aka "theta") will do, look out a week or two or three and compare the same strike price to the one expiring this week.■