Position Greeks are simply the value of Greeks for an outright position or the net position in strategies that involve many options. While this concept may appear simple on the surface, the picture becomes a little less clear as the values change over time.
For example, we know that all puts have a negative Delta because they fall in value when the underlying asset price rises. And, we know that all long calls have a positive Delta because the value of the option rises when the underlying asset price increases. But, what happens if you have a long call and a long put with the same strike prices (e.g. a long straddle)? What is the position Delta? The picture becomes a little less clear in the scenarios.
The easy answer is that the position may have a neutral Delta if the long call is at-the-money with a +0.5 Delta and the long put is at-the-money with a -0.5 Delta. After all, the positive and negative Deltas would cancel each other out and leave a zero Delta.
The problem is that this is only at a single point in time. As time goes on, the Deltas are likely to change and the position Delta may no longer be neutral. A long call option that experiences a Delta increase to +0.75 and a short put that experiences a Delta increase to -0.25 may have position Delta of +0.50. This means that the trader is now net long in the market rather than in the neutral position that they intended at the beginning.
These issues highlight two important position Greek concepts:
- Position Greeks are not constant since they always chance with the movement of the underlying asset price and other variables like time decay and volatility.
- Movement in the underlying asset price can change the value of position Greeks, and in some cases, the sign will flip or invert from positive to negative or vice versa.
The total number of possible position Greeks for each strategy is well beyond the scope of this tutorial, but it’s important to understand that traders need to monitor their option positions over time to determine how the Greeks change. Then, they can take action to correct any of these changes to account for their current sentiment on the market.
Traders can use position Greeks to adjust their option strategies when things change. For example, taking a long straddle and moving the call and put from at-the-money to out-of-the-money and selling them instead of buying them creates a short strangle. Suppose that the Deltas on each option are +0.25 for the short put and -0.25 for the short call. Each leg of the short strangle now has its own Delta, but they are neutral when combined, like the straddle.
The Bottom Line
Position Greeks represent the net values of the various Greeks for option strategies with multiple options or legs. You should understand that position Greeks never remain constant and the changes over time may necessitate taking specific actions to bring them back in line with your overall sentiment about the market.