Add training workflow, datasets, and runbook
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Caveats with Regard to Online
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Greeks
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Often, online greeks are one click away, requiring little effort on the part of
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the trader. Having greeks calculated automatically online is a quick and
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convenient way to eyeball greeks for an option. But there is one major
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problem with online greeks: reliability.
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For active option traders, greeks are essential. There is no point in using
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these figures if their accuracy cannot be assured. Experienced traders can
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often spot these inaccuracies a proverbial mile away.
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When looking at greeks from an online source that does not require you
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to enter parameters into a model (as would be the case with professional
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option-trading platforms), special attention needs to be paid to the
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relationship of the option’s theoretical values to the bid and offer. One must
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be cautious if the theoretical value of the option lies outside the bid-ask
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spread. This scenario can exist for brief periods of time, but arbitrageurs
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tend to prevent this from occurring routinely. If several options in a chain
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all have theoretical values below the bid or above the offer, there is
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probably a problem with one or more of the inputs used in the model.
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Remember, an option-pricing model is just that: a model. It reflects what is
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occurring in the market. It doesn’t tell where an option should be trading.
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The complex changes that occur intraday in the market—taking the day
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or weekend out, changes in stock price, volatility, and the interest rate—are
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not always kept current. The user of the model must keep close watch. It’s
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not reasonable to expect the computer to do the thinking for you.
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Automatically calculated greeks can be used as a starting point. But before
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using these figures in the decision-making process, the trader may have to
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override the parameters that were used in the online calculation to make the
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theos line up with market prices. Professional traders will ignore online
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greeks altogether. They will use the greeks that are products of the inputs
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they entered in their trading software. It comes down to this: if you want
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something done right, do it yourself.
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