Opt789, Thanks for taking the time to post your detailed answer. I will have to do some additional research on PM. I have done a bunch of RCs in the past, some with great results, others so-so. The main plays I have done have been "event-related" ones (earnings, FDA announcements etc.) where I have only held the position a day or two. Yep, you are correct, if we get aggressive and we are wrong (about timing of event, extent of volatility collapse, extent of move on underlying) it can be a novel way to lose our money very quickly. LOL Thanks again. AZD
I was lost and now I am found! Thanks for the kind words. It was part of my parole agreement! LOL. Joshua Fry was a real piece of work. Vehemently defending his option posts while reeling in victims for his financial scam. I wonder if he found a wife named Bubba during his Federal vacation? (wink)
Hi everyone, I remember most of you from the Yahoo days and was hoping to tap into the knowledge of the greeks that most of you have. A theoretical question has surfaced that I could not find any direct way of confirming the correct response. The analogy is as follows: Which of the following best expresses a relationship similar to Delta : Price?? a) Gamma : Delta b) Vega : Volatility c) Theta : Time d) Rho : Interest Rate e) None of the above. I have strong inclination towards (b) since delta measures the rate of change in option price relative to a change in the underlying's price and vega measures the rate of change in the option price relative to a change in the underlying's volatility. I'm nixing the other choices because Gamma : Delta expresses an indirect effect on options price. Gamma affects delta which affects price, but does not relate directly to price as in the analogy. All the others measure a change relative to some other external factor (time decay, rates). Please let me know if my logic is correct. Many thanks in advance.
It is!!! I feel like I nailed everything else, but the 90% pass criteria makes me second guess myself. I swore I would never take another exam after college...never say never right...
Probably closer to a) Delta: amount Op Price changes per 1pt change in underlying. Gamma: amount Delta changes per 1pt change in underlying. But then, I could be wrong...I usually am!
I agree with the above. Delta dictates how much the price of the option will change wit a $1.00 change in the price of the underlying. Gamma dictates how much delta will change with a $1.00 change in the price of the underlying. The other relationships do not follow. IN other words, theta does not dictate how much time will change and rho does not dictate how much interest rates will change.
Thanks for the responses guys. What you are saying makes sense. I don't know why I didn't pick that up. I guess I had tunnel vision once I started focusing on the relationship with the underlying. I'm glad I asked! Thanks again.
It's taken directly from a Portfolio Margin qualification test from a popular broker. Question #12 in fact. The analogy was not DELTA : PRICE, but DELTA : THEORETICAL PRICE. So, did they give you Portfolio Margin?
Well, delta is the first derivative of the price function, and gamma is the first derivative of the delta function, so I would go with answer A.