I said fairly constant not precisely constant. Here's a snapshot of SPY options and deltas. Let's look at 110 calls/puts, which are the closest to ATM. If you ask me, it's fairly or roughly constant. Uploaded with ImageShack.us
The trouble is prices are rarely constant over any stretch of time. So for analysis' sake I guess it helps to look at it this way but consider that in reality the price is moving some amount on any given day. One of the things that happens as you get into the last week of expiration is that gamma gets really large. If you notice that last image posted, the OTM option deltas decrease as you get closer to expiration while ITM option deltas increase. What happens when the gamma gets larger is that relatively small moves of the underlying stock or ETF will cause wild swings of the delta and the option price. When you get to the last day, an option that is OTM by only a little bit will be worth practically nothing but if it goes ITM by a little, the price will spike ATM but become all intrinsic value as you move deeper ITM. Mark ___________________________ mark@success-with-options.com http://www.success-with-options.com
Wrong. Run any model you choose on any ticker and add 1000bp in atm vol, and then check the atm delta. AAPL Aug 270P, +10% added to vol-line, 10-lot... deltas from -465 to -457. Huge dg/dvol eh? The impact is roughly =rho at each 400bp on the vol-line in this example. MTE, can you reduce the rez on your pics? It's makes reading difficult on a notebook.
Yes I think unless there is a strong directional play in the stock, the delta should be close to 0.5 irrespective of volatility as the stock could go either way. Note delta also gives the probability the stock will be in the money.
You hedge as you would with any spread, net-delta. You can hedge weakly if you're assuming that the vols will trade flat on the term-structure.
I know a lot of books and "experts" state something similar, so I do not blame you. It is however not correct. For a given stock price, ATM delta and price of option are "synonymous". In other words, if I know the delta, I can tell what the price is (without knowing volatility, and time, assuming no cost of carry).
I am exceedingly eager to find out why you believe this is incorrect and what the correct answer might be. Please do enlighten me.
Sure, you can solve for price in premium and vol given a precise delta figure (and solve for other greeks/moments), but the fact remains that the impact to delta from vol is lower than rho under most circumstances.
I asked you 3 pages ago to support your claim with facts, yet all you do is keep saying that it is wrong. So put up or shut up, mate!