SPX 1170 Feb call

Discussion in 'Options' started by Sashe, Jan 19, 2004.

  1. Sashe


    I have a quick question.
    I was analyzing SPX 1170 Feb Call trading at $5.60-6.00 and learned that delta on this call is around 0.3. Theta is -0.35.
    In other words presumably if SPX gains 7 points in one day then one should expect call price to move $2.10 (7 x 0.3) -0.35(theta)=$1.75. By looking at Friday close price we see that it closed @6 up only 60 cents, although SPX moved up 7 points.
    Where did all the difference go to? I understand that there are also gamma and vega but from what I see they should have contributed on the up side.
  2. Sahmi


    Only a short answer from my side, there are specialists here who will do this far better...
    My knowledge is, that greeks for a special position are only valid at this very time and for the circumstances at this point of time... Delta for example will change for every point the underlying moves up (or down). So in your example delta won`t be 0.3, it will change, depending on the gamma...
    And this will happen to nearly every "greek"!
    But as i said, there are many users here that can explain this far better.
    Anyway, hopefully this will help you nevertheless.

    Happy trading!
  3. Sashe


    Yeah, I understand that, but why would call delta drop if underlying is rising? Gamma shoul, too, contribute to the upside in this case. That's really bothering me. The only possible way to explain is falling VIX, but not that much.
  4. ktm


    I'm no specialist but will add these two things.

    The delta/theta were slightly different six points prior.

    More importantly, volatility (VIX) dropped nearly a full point Friday. This will impact index options the most on a short term basis.
  5. cvds16


    don't forget also, friday is the day before the weekend, so you have to take into account extra time-decay.
  6. Sashe


    Thanks for all replies. I agree that I should have taken into consideration the weekend time decay, though I have always thought that its taken off on Monday morning. I also agree that delta/theta might have been lower 6 points ago.
  7. You have 4 days of Theta (Fri., Sat., Sun. Mon.) due to the Martin Luther King holiday. Also, Vol. dropped. That's the explanation.
  8. vega


    You hit it on the head Trade-ya1,

    I can tell you from experience that going into a long weekend, especially when there is not significant market movement on Friday morning that in the afternoon traders are generally using theoretical values based on the next trading day (Tuesday). So there was probably a lot more theta than you figured. Also with the drop in VIX the delta for the out of the money options will also decline.

  9. ig0r


    Here's an off-topic question (I'm not very good with greeks yet, so bare with me) but how would a strategy where you go long theta a day or two before a long weekend and close the position after. Seems like a no-brainer, where am I going wrong (I know I am, lol)?
  10. Sahmi


    I think, theoretically, this might work...
    BUT (and that`s the point) to do this profitable, you need to go short quite a large pile of options...
    Then, with every other greek unchanged (theoretically, again), the overall risk exposure would be a bit to large for my taste... :)

    But other`s may think different and maybe there`s someone out there who did this successfully?
    #10     Jan 19, 2004