34 lines
2.2 KiB
Plaintext
34 lines
2.2 KiB
Plaintext
Chapter 40: Advanced Concepts 853
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if the stock moves far enough by expiration. Many market-makers and professional
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traders attempt to structure these types of positions, if possible, in order to take
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advantage of the sudden volatility that is inherent in today's markets.
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Position
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Position Delta Delta
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Short 4,500 XYZ 1.00 - 4,500
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Short 1 00 XYZ April 25 calls 0.89 - 8,900
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Long 50 XYZ April 30 calls 0.76 + 3,800
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Long 139 XYZ July 30 calls 0.74 + 10,286
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Total ESP: + 686
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This position, though complicated to the naked eye, reduces to being long only
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approximately 700 shares of XYZ. This is commonly referred to as being "delta long
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700 shares." Thus, the terms "delta," when referring to the sum of the deltas of a
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whole position, and "equivalent stock position" are synonymous.
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This position has some exposure to the market since it is delta long. If the posi
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tion delta were zero, it would be referred to as being delta neutral and would, theo
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retically, have no exposure to the market at that time.
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Note that one can derive some general characteristics of his delta by just exam
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ining his portfolio by eye: Short calls or long puts will introduce negative delta into
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the position; long calls or short puts will introduce positive delta. Furthermore, it is
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obvious that being long the underlying security adds to the long delta of the position,
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while being short the underlying security places more negative delta in the position.
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The use of this information to adjust the delta of one's position will be discussed in a
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later section of this chapter.
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Obviously, the delta of this entire position will change as the stock price moves
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up or down as time passes. The figure given is merely an instantaneous look at how
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the position is structured. It is the need to know how the position will change when
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other factors change that has led strategists to employ the following concepts.
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GAMMA
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Simply stated, the gamma is how fast the delta changes with respect to changes in the
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underlying stock price. It is known that the delta of a call increases as the call moves
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from out-of-the-money to in-the-money. The gamma is merely a precise measure
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ment of how fast the delta is increasing. |