CHAPTER 17
Putting the Greeks into Action
This book was intended to arm the reader with the knowledge of the greeks
needed to make better trading decisions. As the preface stated, this book is
not so much a how-to guide as a how-come tutorial. It is step one in a three-
step learning process:
Step One: Study . First, aspiring option traders must learn as much as
possible from books such as this one and from other sources, such as
articles, both in print and online, and from classes both in person and
online. After completing this book, the reader should have a solid base
of knowledge of the greeks.
Step Two: Paper Trade . A truly deep understanding requires practice,
practice, and more practice! Fortunately, much of this practice can be
done without having real money on the line. Paper trading—or
simulated trading—in which one trades real markets but with fake
money is step two in the learning process. I highly recommend paper
trading to kick the tires on various types of strategies and to see how
they might work differently in reality than you thought they would in
theory.
Step Three: Showtime ! Even the most comprehensive academic study
or windfall success with paper profits doesn’t give one a true feel for
how options work in the real world. There are some lessons that must
be learned from the black and the blue. When there’s real money on the
line, you will trade differently—at least in the beginning. It’s human
nature to be cautious with wealth. This is not a bad thing. But emotions
should not override sound judgment. Start small—one or two lots per
trade—until you can make rational decisions based on what you have
learned, keeping emotions in check.
This simple three-step process can take years of diligent work to get it
right. But relax. Getting rich quick is truly a poor motivation for trading
options. Option trading is a beautiful thing! It’s about winning. It’s about