How to trade binary options with nadex * ibonosotax.web ...

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Edit:
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We want to give a huge THANK YOU to everyone who participated in the AMA. It was a blast taking all of your questions and getting to hear Reddit’s POV on a product as niche as ours. We hope we were able to give everyone a better understanding of what binary options are, as well as clear up any misconceptions you might have had. We look forward to doing this again soon!
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Hello everyone!
I recently made some cheat sheets for the greeks that I thought might be useful to would share! I chose the greeks that you will most often see, and I hope that they are helpful!
If you would like to download the full his-res set, you can do so here.
Let’s dive right in!
First up is the Greek Family Tree – this can be helpful to keep track of how all of the greeks are related.
Greek Family Tree
We see the first order and the second order greeks.
The first order greeks are traditionally associated with directly affecting an option’s price, whereas the second-order greeks are associated with directly affecting the first order greek’s values.
It can get a tad messy but, hopefully things are a little more clear as we progress.
Next up is just a quick information page – I wanted to have some sort of “ranking” system to help triage which information about which greeks is most important.
Importance Score
We see there are 5 tiers to the greeks:

1. These greeks are not that important really.
2. These greeks are usually not important but you might see them occasionally
3. Now we are starting to get into the greeks that are pretty important and you should know them.
4. These greeks should almost always be a consideration when entering or exiting an options play. They have individual play and market-wide impacts.
5. These greeks are singularly the most important greeks as they have significant impact on the trajectory of an option as well as significant impact on the markets as a whole.

Let’s dive into the greeks themselves now!
Moving from 1st to 2nd order greeks and from left-to-right, the first up is: Rho!
Greek Cheat Sheet for Rho
Rho isn’t usually used that often both for individual trading or, well, ever really. Rho represents the amount of money that you could make if you sold options (and collected premiums) and then put the collected premiums in an interest-baring savings account for the duration of the positions life.
The idea is that the money you could make from selling the option and incurring the interest payments from the bank should be included in the price of an option (There’s no free lunch in the market!).
So that’s how the interest rates affect the price!
We can see why this is not a commonly used greek, however, as you would need high interest rates, pretty long maturities, and a good chunk of premiums in order to collect any meaningful gains.
Moving along, we get Theta!
Greek Cheat Sheet for Theta
Theta is definitely a greek worth keeping an eye on as it determines how much an option is worth based on the passage of time.
Think of it this way: suppose you had two 50% discount coupons for milk at the store, and you wanted to sell it. Would the coupon that expires today or the coupon that expires next month be worth more?
Most likely the coupon that expires next month: there will be more time to get the discount versus having to rush to the store, hoping they have the right milk, and purchasing it for 50% before end of day. That can be a tall order!
Thus, just like coupons, options typically raise in value the longer they have until they expire.
So, when an option’s expiration approaches, the option stats to lose time-value. How much time value is determined by theta!
Moving right along, next up is Delta.
Greek Cheat Sheet for Delta
The one and only delta! The singularly most important greek for the vast majority of options plays. Delta has significant impact on the market-at-large as well as for individual portfolios.
Delta can be long (positive) or short (negative) and it is important to understand which is which.
To help figure that out, consider a trader who has a short put. That means they sold a put.
Should their position increase in value or decrease in value as the price of the stock rises? Note: we are talking about the position value, not the option’s value.
If the position’s value increases, then the delta is long (positive), if the position’s value decreases, then the delta is short (negative). [Note: the position’s value increase while the option’s value decrease because as the put becomes further OTM as the price appreciates, the put becomes less expensive. This means the trader who shorted the put can re-purchase the put for less than they sold it for and in the process, profit from the difference in price!]
So, as the stock’s price rises (the put becomes further out-of-the-money [OTM]), your position’s value increases (the cost of the put decreases in value), this means the short position has long (positive) delta!
Practicing how to determine if a position is short or long delta can be very helpful with both fundamental and complex options plays.
Moving along, we have Vega!
Greek Cheat Sheet for Vega
If you’ve ever heard of “I.V. Crush”, this is where it comes from. Vega measures how likely it is that an option will expire in-the-money (ITM) based on how much the market thinks a stock’s price will move.
The market uses a tool called “Implied Volatility” (I.V.), to anticipate how much a stock is expected to move over a given time-frame. So, for instance, the market might say “Because we think stock X will move +/- 5% over the next month, its I.V. is Y”.
If the implied volatility increases, so too does the range that the stock is expected to move, and if implied volatility decreases, so too does the range a stock is expected to move.
The more a stock is expected to move, the greater the likelihood that it will move towards becoming ITM – thus, its value increases. So, when the I.V. increases, the cost of the option increases! Conversely, if I.V. decrease, there is less chance that the OTM option can move enough to become ITM, and thus, the value of the option decreases.
Vega can be a pretty important consideration when opening naked long options: they are particularly exposed to vega, especially if they are ATM and far-dated. This is where “I.V. Crush” comes from: when the IV on a stock drops drastically and substantially removes value from all of the long options open.
Moving along, we get to our first 2nd order greek: Charm!
Greek Cheat Sheet for Charm
Also known as “delta decay”, charm measures by how much delta decays away with the passage of time.
Since one of the ways we can think of delta is the probability of expiring ITM, as time passes, if an option is not ITM then it has less time to become so. With less time, there is less of a chance. With less of a chance, delta decreases!
By how much delta decreases per unit (usually 1 day) of time, is delta.
Although not the most important greek for day-to-day activities, you’ll see in the graph that charm increase as expiry approaches and so it has a particularly high impact near monthly options expiry (Opex).
Moving along, we get to: gamma!
Greek Cheat Sheet for Gamma
The infamous gamma – most widely known for one of its nefarious consequences, the gamma squeeze, gamma controls how much delta changes as the stock’s price changes.
In a similar vein of charm, as a stock moves towards or away from its strike price, the chances that it will expire ITM either increases or decreases, respectively.
By how much this probability (and thus, delta) changes, is determined by gamma.
Being able to determine if something is short or long gamma is relatively straightforward: long (purchased) options give long gamma (positive gamma) and short (sold) options give short (negative) gamma.
Gamma has pretty significant impacts on the market-at-large as it is the principal greek for delta/gamma hedging that options dealers perform in order to supply liquidity to the derivatives market.
Moving along, we have Vanna!
Greek Cheat Sheet for Vanna
One of my favorite greeks, Vanna is one of the more complex greeks and has quite the relationship with delta and the market-at-large.
Under normal conditions vanna is largely irrelevant, but when it becomes relevant it usually does so with substantial vigor – often causing major and seemingly unintuitive shifts in hedging requirements.
The distribution of vanna and its effects on the market are dependent on both the moniness (if it is ITM or OTM) and its direction (if the option is long or short), and things can get complicated quite quickly.
Nonetheless, the take-home message is that since the probability of expiring with value is dependent on how much the market thinks the stock’s price can move until expiry, then if the expectation of the stock’s price’s range changes, so too does the probability of expiring with value.
By how much this probability changes is vanna!
Next up is Veta.
Greek Cheat Sheet for Veta
Veta is the charm of vega – it determines how sensitive vega is to the passage of time. As time progresses, how much an option’s price changes based on changes in the future outlook for the stock price’s movements changes – it can be helpful to consider veta the “uncertainty factor” . As time progresses, there is less uncertainty, and thus, vega typically diminishes.
And finally, we have Vomma.
Greek Cheat Sheet for Vomma
Vomma work on vega by adjusting how sensitive it is to changes in the future anticipated price-range of a stock. Similar to charm, as the uncertainty decreases via volatility (not via the passage of time like Veta), then vega will typically shrink in value.
As vega shrinks in value, the price of an option becomes less sensitive to fluctuations in I.V.
Well, that’s about it for the greeks! I hope these are helpful.
If you have any questions or if there is anything I can help clarify, please don’t hesitate to reach out.