With the emphasis on approximately you can use a leverage Calc.... <font color=#ffffff>â¦â¦....................â¦â¦â¦â¦â¦â¦â¦â¦</font color>Underlying Price Leverage = Option Delta x ------------------------ <font color=#ffffff>â¦â¦......................â¦â¦â¦â¦â¦â¦â¦â¦</font color>Option Price Which gives the option percentage change per percentage change in the underlying. <font color=#ffffff>â¦â¦....................â¦â¦â¦â¦â¦â¦â¦â¦</font color>1.2250 Leverage = -0.1273 x ------------------------ = 17.32% <font color=#ffffff>â¦â¦.....................â¦â¦â¦â¦â¦â¦â¦â¦</font color>0.009 . So for each 1% change in the underlying, the option will change value by 17.32%, 2% underlying change and the option changes by 34.64% and so on....reasonable approximation to about 3% underlying change. BTW, if you can calculate the greeks, why can't you calculate the precise option ThVal for a given underlying change ?
Profitaker But that's the point - the difficulty is working out the greeks, or interpreting them, for an option that is 1/ european style? 2/ has multipliers. The greeks given and the subsequent calculations based on them just don't make sense (if you look at the previous posts you'll see what I'm talking about). ra1
Oh yeah, something wrong somewhere. Put Option with that Delta can't be worth that price. Anyway, he's got a rule of thumb calc now, which is what I think he was asking for. Don't know if you know this but Theta is normally quoted annually. So the daily decay rate is Theta/365.
Hi profitaker I was just going by L. Mcmillan's book "options as a strategic investment" 4th ed. page 862 where he gives an example of theta "if an option has a theta of -0.12, that means the option will lose 12 cents PER DAY". Also all the pricing models I have used give me theta as a per day value. Also, from a practical point of view, who could be bothered working out daily theta by dividing by 365 - it's a lot easier if it is given as a daily value, and that is indeed what is provided by brokers, option models etc.. But maybe I'm missing something, if so I'll have to return my copy of Mcmillan, lol. ra1
Fine, it's just that the value (0.0002) looked too big to be a daily decay as you suggested, and I wondered whether the original poster calculated the annual Theta by formula. Most published Theta formulas solve for annual decay.
These Greeks came directly from IB optiontrader screen - they should be right. This is why I needed help with the math on this. You were exactly right, the underlying market moved in my trade's favor almost exactly EURUSD 1.0000, and the last bid/ask I saw on the puts on Friday was .0016 - .0020 (split of .00175) so your call of about .0017 was very close indeed. But since there is still well over 30 days to expiration, there is no way they will lose 25% value each day. More like 2.5% I would think. Some of the confusion for me comes from the 4 places after the decimal on currency. This is why I was asking if someone like Deringer who correctly calculated the price after a 1.0000 move could be gracious and generous enough to write out the math in simple terms. I am too dumb for anything fancy. Thanks to all who have helped so far. Paul
No I wrote this theta down direct from the IB quote screen - so do you think it is annual? In that case, would you simply 0.0002 by months or days and if so, what would that look like formula wise? Thanks,
So is that figure then interpreted as a daily amount of price decay or a percentage or what? (once again, all the extra zeros confuse me) -.0002 / 365 = 0.0000005