39 lines
1.2 KiB
Plaintext
39 lines
1.2 KiB
Plaintext
Chapter 40: Advanced Concepts
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FIGURE 40-7.
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Theta comparison, with XYZ = 50, t = three months.
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-16
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Very High Volatility
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-14
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-12
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0 0
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T""
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X
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~
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-10
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.i:::
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I-
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-8 Low Volatility
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-6
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0
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40 45 50 55 60
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Strike Price
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TABLE 40-7.
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863
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65
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Theta comparison for differing volatilities (XYZ = 50, t = 3 months).
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Strike low Volatility Medium Volatility High Volatility
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40 -0.005 -0.008 -0.013
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45 -0.007 -0.010 -0.014
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50 -0.008 -0.010 -0.015
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55 -0.007 -0.010 -0.016
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60 -0.006 -0.009 -0.016
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65 -0.004 -0.008 -0.015
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to lose value. This does not change the fact that, for very short-term options, the theta
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is largest at-the-money.
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Normally, the theta of an individual option is of little interest to the strategist.
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He generally would be more concerned with delta or gamma. However, as with the
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other risk measures, theta can be computed for an entire portfolio of options. This
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measure, the "position theta," can be quite important because it gives the strategist
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a good idea of how much gain or loss he can expect on a daily basis, due to time ero
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sion. The following example demonstrates this point. Note that the underlying secu
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rity itself has a theta of zero, since it cannot lose any value due to time decay. |