38 lines
1.2 KiB
Plaintext
38 lines
1.2 KiB
Plaintext
858 Part VI: Measuring and Trading Volatility
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FIGURE 40-5.
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Gamma comparison, with XYZ = 50, t = three months.
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8
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7
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0 6
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0
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~ 5
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<ti
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E 4 E
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~ 3
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2
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TABLE 40-5.
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40 45
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Low Volatility
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Very High Volatility
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50 55 60
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Strike Price
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65
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Gamma comparison for varying volatilities (XYZ = 50, t = 3
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months).
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Gamma Very
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Strike Low Volatility High Volatility High Volatility
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40 .003 .013 .017
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45 .039 .039 .022
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50 .086 .057 .024
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55 .057 .049 .025
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60 .015 .028 .023
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65 .002 .012 .020
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As before, the position still has a delta long of almost 700 shares. In addition,
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one can now see that it has a positive gamma of over 300 shares. This means that the
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delta can be expected to change by 328 shares for each point that XYZ moves: If it
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moves up 1 point, the delta will increase to +1,014 (the current delta, 686, plus the
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gamma of 328). However, ifXYZ moves down by 1 point, then the delta will decrease
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to +358 (the current delta, 686, less the gamma of 328).
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Note that, in the above example, if XYZ continues higher, the gamma will
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remain positive (although it will eventually shrink some), and the delta will continue
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to increase. This means the position is getting longer and longer - a fact that makes |