is just under 0.50, while that of the call is just over 0.50. The disparate, yet
related deltas represent the main difference between these two trades.
The difference between the gamma of the 35 put and that of the
corresponding call is fairly negligible: 0.174 versus 0.166, respectively. The
gamma of this ATM put will enter into the equation in much the same way
as the gamma of the ATM call. The put’s negative delta will become more
negative as the stock declines, drawing closer to −1.00. It will get less
negative as the stock price rises, drawing closer to zero. Gamma is
important here, because it helps the delta. Delta, however, still remains the
most important greek. Exhibit 4.14 illustrates how the 35 put delta changes
as time and price change.
EXHIBIT 4.14 Disney 35 put price–time matrix–delta.
Since this put is ATM, it starts out with a big enough delta to offer the
directional exposure Mick desires. The delta can change, but gamma
ensures that it always changes in Mick’s favor. Exhibit 4.15 shows how the
value of the 35 put changes with the stock price.
EXHIBIT 4.15 Disney 35 put price–time matrix–value.