Incorrect Option Greeks: A Delta of Deception
The Mysterious Case of the Erroneous Option Greeks
When trading options, investors rely on reliable data to make informed decisions. However, a recent phenomenon has left many scratching their heads: incorrect option greeks. We'll delve into the world of delta and gamma, exploring what's causing these discrepancies.
Incorrect option greeks can have far-reaching consequences for portfolios. To understand this issue, let's start with some basic definitions. Delta is the first partial derivative, indicating the expected change in an option price for a $1 change in the underlying stock. Gamma is the second partial derivative, calculating the slope of the delta equation.
The Inconsistencies Begin to Surface
TD Ameritrade (TDA) reported a delta on the Ligand (LGND) November $5 call of 0.93 and a gamma of 0.19. That adds up to 1.12, exceeding the maximum possible value for both delta and gamma combined. The November $5 put had a delta of minus 0.08 and a gamma of 0.20, totaling 0.12, which is also incorrect.
When examining other platforms, we noticed similar discrepancies. For example, on another TDA webpage, the November $5 call delta was reported as 0.998 and the gamma as 0.016, resulting in a total value of 1.014. The November $5 put had a delta of -0.002 and a gamma of 0.016.
Portfolio Implications: QQQQ and Other Assets
Incorrect option greeks can have significant implications for portfolios holding options on various underlying assets. For instance, the NASDAQ-100 Index (QQQQ) is a popular choice among traders. If the reported greeks are inaccurate, it could lead to misinformed decisions regarding hedging strategies or risk management.
The issue extends beyond QQQQ, affecting other stocks like Citigroup (C), Goldman Sachs (GS), and United States Natural Gas Fund LP (UNG). Even QUALCOMM (QUAL) is not immune to these discrepancies. Investors need to be aware of the potential risks associated with incorrect option greeks when trading these assets.
Actionable Insight: What to Do Next
To avoid falling victim to inaccurate option greeks, investors should exercise caution and verify data across multiple platforms. A simple solution would be to use a reputable third-party provider or consult with an experienced options trader. By taking this extra step, traders can minimize the risks associated with incorrect option greeks.