35 lines
1.1 KiB
Plaintext
35 lines
1.1 KiB
Plaintext
Chapter 40: Advanced Concepts
|
|
FIGURE 40-1 8.
|
|
Trading long gamma, position delta.
|
|
6000
|
|
4000
|
|
2000
|
|
"' ~ 01---------,-----~rr------,,-----
|
|
.s::.
|
|
(J)
|
|
-2000
|
|
-4000
|
|
-8000
|
|
-8000
|
|
55 65
|
|
Stock Price
|
|
899
|
|
position. In the preceding position, the strategist wanted to be gamma long, but
|
|
neutral with respect to delta and volatility. Suppose he not only expects price
|
|
movement (meaning he wants positive gamma), but also expects an increase in
|
|
volatility. If that were the case, he would want positive vega as well. Suppose he
|
|
quantifies that desire by deciding that he wants to make $1,000 for every one
|
|
percentage increase in volatility. The simultaneous equations would then be:
|
|
0.050lx + 0.0306y = 10 (gamma)
|
|
0.089x + 0.147y = 10 (vega)
|
|
The solution to these equations is:
|
|
X = 243, y = -80
|
|
Furthermore, 8,500 shares would have to be sold short in order to make the position
|
|
delta neutral. The resulting position would then be:
|
|
Short 8,500 XYZ
|
|
Long 243 March 60 calls
|
|
Short 80 June 60 calls
|
|
Delta: neutral
|
|
Gamma: long 1,000 shares
|
|
Vega: long $1,000
|
|
Theta: long $630 |