36 lines
2.4 KiB
Plaintext
36 lines
2.4 KiB
Plaintext
866 Part VI: Measuring and Trading VolatOity
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enough, the gamma (and therefore the delta) may change dramatically. Thus, one
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might want to know how this risk measure affects his profitability.
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SUMMARY
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Delta: Positive delta indicates that a position is currently bullish; if the underly
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ing security goes up in price, the position should make money. A negative
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delta indicates a bearish slant.
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Gamma: Positive gamma means that the delta will increase if the underlying secu
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rity rises in price. Positive gamma generally implies that there is a pre
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ponderance of long options in the position, either puts or calls; negative
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gamma indicates written or naked options in the position.
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Theta: Negative theta means that the position will lose money as time passes
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(typical of positions with long options); positive theta implies that time is
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working for the position (positions with written options).
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Vega: Positive vega means that an increase of (perceived) volatility will benefit
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the position - usually true of positions with long options in them; nega
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tive vega means that a decrease of volatility would be beneficial.
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STRATEGY CONSIDERATIONS: USING THE
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11
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GREEKS"
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Before looking at how one operates a particular strategy using delta, gamma, etc., it
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might be beneficial to see how these factors relate to the individual strategies that
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have been described throughout this book. Table 40-8 is a general guide to how the
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various strategies are exposed to various market factors. It is not an all-purpose or
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specific table, because as the stock moves higher or lower, some of the risk measure
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ment factors will certainly be affected.
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A few assumptions were made in constructing the table. First, it was assumed
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that the strategies where delta is noted as being zero are established in a neutral
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stance. The bull spread and bear spread strategies assumed that the stock was mid
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way between the striking prices. Two other spread strategies - ratio call and ratio put
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- assumed the stock was at the striking price of the option that was sold. In all other
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cases, there is only one striking price involved, and it was assumed that the stock was
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at the strike.
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The table may help to clarify some of the concepts concerning the risk meas
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urement factors. First, notice that stock or futures - or any underlying security- have
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only delta. None of the other factors pertains to the underlying security itself. |