40 lines
1.3 KiB
Plaintext
40 lines
1.3 KiB
Plaintext
856 Part VI: Measuring and Trading VolatHity
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FIGURE 40-4.
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Gamma comparison, with XYZ = 50.
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8
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7
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0 6 0 ..-
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X 5
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Cl!
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E 4 E
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Cl! 3 (!)
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2 t= 1 year
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t= 6 months
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t= 3 months 0 '-'----~---__._ ___ _._ ___ _._ ___ ....___
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40 45 50 55 60 65
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Strike Price
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TABLE 40-4.
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Gamma comparison - various amounts of time remaining
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(with XYZ = 50).
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Time Remaining Strike Price
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40 45 50 55 60
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1 year .015 .029 .039 .04 .033
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6 months .011 .037 .058 .051 .030
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3 months .003 .039 .086 .057 .015
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2 months .108
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1 month .166
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1 week .288
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65
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.023
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.013
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.002
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Note that the at-the-money options (January 50's and February 50's) on ABC,
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the less volatile stock, have larger gammas than do their XYZ counterparts. However,
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look one strike higher (January 55's), and notice that the more volatile options have a
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slightly higher gamma. Look two strikes higher and the more volatile options have a
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vastly higher gamma, both for the January 60's and the February 60's.
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This concept makes sense if one thinks about the relationship between volatili
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ty and delta. On nonvolatile stocks, one finds that the delta of even a slightly in
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the-money option increases rapidly. This is because, since the stock is not volatile,
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buyers are not willing to pay much time premium for the option. As a result, the
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gamma is high as well, because as the stock moves into-the-money, the increase in |