Gamma helps as the stock price declines, too. Exhibit 4.8 shows the effect
of time and gamma on the delta of the 37.50 call.
EXHIBIT 4.8 Disney 37.50 call price–time matrix–delta.
The effect of gamma is readily observable, as the delta at any point in
time is always higher at higher stock prices and lower at lower stock prices.
Kim benefits greatly when the delta grows from its initial level of 0.185 to
above 0.50—above the point of being at-the-money. If the stock moves
lower, gamma helps take away the pain of the price decline by decreasing
the delta.
While delta, gamma, and theta occupy Kim’s thoughts, it is ultimately
dollars and cents that matter. She needs to translate her study of the greeks
into cold, hard cash. Exhibit 4.9 shows the theoretical values of the 37.50
call.
EXHIBIT 4.9 Disney 37.50 call price–time matrix–value.