32 lines
1.1 KiB
Plaintext
32 lines
1.1 KiB
Plaintext
874 Part VI: Measuring and Trading Volatility
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FIGURE 40· 1 O.
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Proiected delta, in 14 days.
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6000
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4500
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3000
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Cl) 1500 ~ ro .c
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(/)
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0 'E
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(1)
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80 85 ~ ·5 -1500
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95
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XYZ Stock Price
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C"
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UJ
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-3000
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-4500
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Using the example data:
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Loss, XYZ moves from 88 to 89: -$100 (the position delta)
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Loss, XYZ moves from 89 to 90: -$100 (delta) - $600 (gamma)
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: -$700
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Total loss, XYZ moves from 88 to 90: -$100 x 2 - $600 = -$800
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This can be verified by looking at the prices of the call and put after XYZ has jumped
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from 88 to 90. One could use a model to calculate expected prices if that happened.
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However, there is another way. Consider the following statements:
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If the stock goes up by 1 point, the call will then have a price of:
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p 1 = Po + delta
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5.505 = 5.00 + 0.505 (if XYZ goes to 89 in the example)
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If the stock goes up 2 points, the call will have an increase of the above amount
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plus a similar increase for the next point of stock movement. The delta for that sec
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ond point of stock movement is the original delta plus the gamma, since gamma tells
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one how much his delta is going to change. |