Option Greeks in Plain English: Mastery in Under 60 Minutes by Place Steven

Author:Place, Steven [Place, Steven]
Language: eng
Format: mobi, epub
Published: 2013-01-02T00:00:00+00:00

Now we will step through each major greek and we will see how each of these changes affects the greek.

DELTA - CHANGE OVER PRICE

This is known as the gamma, which we have discussed already in detail.

DELTA - CHANGE OVER TIME

This is known as "delta decay," or charm. And it isn't the same for every single option.

Remember, the delta of an option is roughly related to the odds that the option will expire in the money.

Now consider an out of the money option. Does it have a higher chance of expiring ITM with 3 months of time left or 1 day? The former of course; more time means more potential price movement, which increases the odds.

The converse occurs with an in the money option-- as expiration approaches, the odds that the option will be in the money continues towards 100%, or 100 delta.

This can also be viewed by looking at risk profile of a call option, comparing the delta today and the delta at expiration.

At options expiration there are two outcomes for delta: either a delta of 0, or the delta of 100.

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