Options and Greeks

Tower,

Most basic questions can answered via a Google search. "Skew delta" is an exception.

This is all I could find:

Skew Delta: A delta that takes into account the effect of skew on the change in option prices.

"When the market moved up, all the implied vols would go up, at a given fixed level of strike. This added a "skew delta" that made a significant difference".

Maybe you could add some substance?

Thank you.

Grant.

 

Grant,

Two examples to look at:

Wheat, at the moment, has a volatility which is directly correlated to the price. (i.e. prices go up, IV goes up)

S&P has a volatility which is negatively correlated to the price. (i.e. prices go down, IV goes up)

There's somewhat of a linear correlation, but that's not really how I'd describe it. Quick moves cause much larger jumps in IV than slow ones of the same magnitude.

These correlations can, of course, reverse at some point. (If it were more likely for the S&P to jump 8% overnight than to crash 8%, the correlation would be reversed)

 

with all those massive buyouts , the skew should be on the calls side and vix should go up when markets rises , lol

 

What's going on here? Is optionsguy the same as tower or is mrspread our tower? Who has changed what??? Where are the children? I thought this was an adult site.
daddy's boy

 

Google Derman's sticky delta

 

Riskarb,

Preoccupied with my options programmes, I lack the time to read at all the material I’ve collected. This paper is an example.

I’ve got quite a few papers by Derman – he’s probably the most lucid writer on derivatives. Indeed, knowledge re the plain vanilla is enhanced by reading almost any of his works, eg on swaps.

However, thank you for suggestion, not entirely in vain. Following the search as you suggested I’ve got a source for exploring “sticky delta” (to supplement “sticky strike” ).

If you can tolerate quants who are right up their own arses, the following forum is an excellent source for technical – occasionally esoteric - discussions (this one re implied volatility):

http://www.wilmott.com/messageview.cfm?catid=19&threadid=4339&STARTPAGE=1&FTVAR_MSGDBTABLE=

An exceptional poster generally is “Aaron” – clarity and modesty.

Also look at http://www.risklatte.com/volatilityToday

Re this last site, there is an article re Vomma and Vanna. Vanna – variation of vega with the underlying - is given as vega/spot.

But this is also given for Vomma – variation of imp vol with the underlying. I think it should be vega/implied vol. Perhaps you – or someone – could clarify?

And let's not forget the third sister, Volga.

Grant.

 

I'm right re the vomma calc.

Volga is vomma.

Good article at:

http://www.derivativesstrategy.com/magazine/archive/1999/1199fea1.asp

Grant.

 

But relying on skew deltas vs regular deltas implies that you actually modeled the skew properly, so not exactly a walk in the park.

 

Correct, but you only need to model the strikes traded as the dataset and interpolate. The output is linear, but good enough for what we're talking about.

 

So short of any supply/demand shocks at some strikes or market disturbances fairly easy to model?? Still probably not very practical for the average ET options guy