CommodityVol.com is pleased to offer its Greeks Report to the trading world. An example of the report can be found at the bottom of this page or it can be downloaded here.
What does it show?
The Greeks Report takes the information from the market and calculates the implied greeks. Using the implied greeks we take the open interest at each strike (for put and call respectively) and multiply it by the unit greeks.
We then sum up the net position per strike (put greek times open interest plus call greek times open interest) scaling by
the contract multiplier if it is appropriate.
Δ (delta)Click to expand/contract
is the sensistivity of the option's price to the underlying. By treating the options as unhedged (which is not usually the case) the user gets a picture of the "bend" of the market. A market in which there is very little relationship between delta and the
strike suggests that first order effects are likely not to drive the market dynamics. The options market can be decoupled from
the underlying. When there is a bias, especially at the money, then we can expect net hedging behavior in the options to
feed into the underlying market.
Γ (gamma)Click to expand/contract
is the change in sensistivity to the sensistivity of the option's value to the underlying. Gamma is a proxy for the point density function of the underlying. On a unit (not weighted by open interest) basis, the gamma peaks with the at the money strike and
diminishes quickly (for any of the models that are similar to Black's model). When we apply the open interest of the market participants,
the gamma becomes a market weighted point density function. The weighted gamma helps to understand where there might be regions of attraction
or repulsion. High gamma strikes are typically magnets for local market activity. Consider a gamma spike at 20, with the market currently
at 18 starts a rally towards. If the gamma position is primarily composed of long calls, the move towards 20 will be met with the selling of
the extra deltas accumulated on the move up. If the gamma position is primarily composed of short calls, then this sprint upwards
will result in unbalanced buying by the short call side of the market. Obviously, there is a buyer for every call offered in the market
so the inclination is to say this is a net wash. However, in most markets, there are institutional biases. Short call players are typically
institutions who are engaging in call writing. The long side is more varied, and, as such, less informative. Similarly, on the put side
institutions are more likely to write puts and hedge them, while most downsided protection purchases are less likely to hedge.
ν (vega)Click to expand/contract
is the sensistivity of an option to changes in the assumed level of implied volatility. The open interest weighted vega exposure gives a feelfor where revisions in riskiness can have a large impact. Changes in vega typically have spillover effects in that a revision in the implied volalility
can drive hedging as the delta position of a hedged position can change dramatically. In a quiet market for the underlying a change in vega can
create a cascade of rebalancing which drives market activity in the underlying.
Why is this report important?
These metrics are important indirect guages to get a feel for stability of the market. A market with no delta position is unlikely to be spooked by small moves in the underlying. A large gamma at a strike identifies that strike as an important source of attraction or repulsion. It helps to define the levels which are reasonable in the short run. The
vega helps to focus on situations where revisions to option specific information can generate moves now.
ModelsClick to expand/contract
Models are typically driven by market convention, with some flexibility. If an underlying is a future, then the default model is Black's model.
Additionally, we offer BaroneAdesi as a more correct approximation in order to deal with the early exercise feature in most futures options.
If the underlying is a cash security, then BlackScholes is assumed with the cost of carry estimated from the at the money options.
For some STIRs options, we offer Bachelier model greeks and the ability to use a "yield based" version of Black Scholes.
CalendarsClick to expand/contract
The user can choose between a Business day or Actual (calendar) day calendar. Some calenars, like those of the Chinese markets, are too difficult to predict so we allow only Actual days. Some crypto markets are continuous so there is no real concept of the "Business day". We use an actual day calendar.
ExpiriesClick to expand/contract
We can take all expiries in the generation of the report or a few. You decide.
ProductsClick to expand/contract
Some products are very similar, if not the same. One example of such a product family is the Natural gas contract LN and ON. The only difference in the contracts is the absence or presence of early exercise. We can combine the greeks from such related contracts. In other cases, the contracts differ only in contract multipliers. The ES/SP/MES family of contracts are identical except
for details on multiplier. Not all combinations make sense however. These types of issues are best resolved on a case by case basis.
HistoryClick to expand/contract
Do you need a history? How far back do you want to see these reports?
Get it now!
The first step in getting the ball rolling is to contact us using our form.