Yesterday I watched the latest bollywood flick ‘Piku’. Quite nice I must say.

After

watching the movie I was casually pondering over what really made me like Piku –

was it the overall storyline, or Amitabh Bachchan’s brilliant acting, or Deepika

Padukone’s charming screen presence, or Shoojit Sircar’s brilliant direction? Well, I

suppose it was a mix of all these factors that made the movie enjoyable.

This also made me realize, there is a remarkable similarity between a bollywood

movie and an options trade. Similar to a bollywood movie, for an options trade to

be successful in the market there are several forces which need to work in the

option trader’s favor. These forces are collectively called ‘The Option Greeks’. These

forces influence an option contract in real time, affecting the premium to either

increase or decrease on a minute by minute basis. To make matters complicated,

these forces not only influence the premiums directly but also influence each

another.

To put this in perspective think about these two bollywood actors – Aamir Khan and

Salman Khan. Movie buffs would recognize them as two independent acting forces

(similar to option Greeks) of Bollywood. They can independently influence the

outcome of the movie they act in (think of the movie as an options premium).

However if you put both these guys in a single flick, chances are that they will try to

pull one another down while at the same time push themselves up and at the same

time try to make the movie a success. Do you see the juggling around here? This

may not be a perfect analogy, but I hope it gives you a sense of what I’m trying to

convey.

Options Premiums, options Greeks, and the natural demand supply situation of the

markets influence each other. Though all these factors work as independent agents,

yet they are all intervened with one another. The final outcome of this mixture can

be assessed in the option’s premium. For an options trader, assessing the variation

in premium is most important. He needs to develop a sense for how these factors

play out before setting up an option trade.