The delta curve up from min 6:25 cannot be the right one. If we consider the delta curve to be the first derivative and gamma to be the second derivative of the option pricing model the delta curve shall increase it's rate of change up to the ATM strike (here, it already decreases the rate of change even before the ATM strike). Otherwise, the gamma curve could not have the shape of the famous bell curve we all like so much! :) Even though this chart is surely not part of an academic work, this is kind of confusing.
Sorry about the confusion with this! You are correct - in a perfect drawing the gamma would be at it's highest point as you get closer to the ATM option, which would mean the relative slope would be at it's sharpest point as you get close to the ATM strike - please forgive my whiteboard drawing on this one!
Good associating strategy sell strattle or a diagonal w bullish intent so vol decreases to buy back w delta even and vol decreasing lowering option price so we keep diference. Best to close fast as theta and risk high if goes against us. Suggest 40% profit or by half time to take $
Thanks! At expiration, it's a little different since ATM options will still have a pretty high delta, but close to zero extrinsic value means little vega sensitivity. Vega tends to die off at expiration while delta is still alive and well, and is typically contentrated right around the stock price.
your last slide said in put options delta and vega work synergestically. is it safe to say that with a strong bearish view in low volatility a bear put spread with net debit would work better than a bear call spread with a net credit. in a bear put spread when prices fall we set to gain more as increase in voaltility works in our favor also.in a bear call spread when prices fall gains made would be offset due to options increasing in value due to increase in volatility. however there's another variable theta which is favoring the bear call spread. how does one chose between the two strategies. i am currently facing a scenario wherein a bear put spread and bear call spread both have same deltas. theta vega ratio for bear put spread is 3 whereas for the bear call spread is 0.65 . days to expiry: 18
arpit agarwal You make good points with the debit spread, but with only 18 DTE the vega will be decelerating too much and theta accelerating too much. Better to go with the credit spread imo.
Long options have positive vega, because if IV% expands, that reflects an increase in option prices across the board. All else equal, that benefits the option buyer.
The chart at 6:50 is incorrect - further to Marvins comment below, the graph shape shows a rapid fall in the middle of the graph, but pretty small declines otherwise - in real life that does not happen. The change in delta and vega is much more smoother. Just go to any modelling software, and if the SPX is at say 3450, look at the delta and vega figures for the strikes of 3450, 3400, 3350, 3300....etc and you will see that these Greeks change much more smoothly.
Yeah in the option chain, but when you have the actual position on you experience compounding of these Greeks. So it's enhances it much more that's why you see such a steep curve
You are Most Educational and Most Informative and Most Likeable.
The delta curve up from min 6:25 cannot be the right one. If we consider the delta curve to be the first derivative and gamma to be the second derivative of the option pricing model the delta curve shall increase it's rate of change up to the ATM strike (here, it already decreases the rate of change even before the ATM strike). Otherwise, the gamma curve could not have the shape of the famous bell curve we all like so much! :) Even though this chart is surely not part of an academic work, this is kind of confusing.
Sorry about the confusion with this! You are correct - in a perfect drawing the gamma would be at it's highest point as you get closer to the ATM option, which would mean the relative slope would be at it's sharpest point as you get close to the ATM strike - please forgive my whiteboard drawing on this one!
Good associating strategy sell strattle or a diagonal w bullish intent so vol decreases to buy back w delta even and vol decreasing lowering option price so we keep diference. Best to close fast as theta and risk high if goes against us. Suggest 40% profit or by half time to take $
Seems like calls are more "neutral" because the delta and vega don't have any synergistic relationship
This is a gem of information , Thanks Mike. Do Delta and Vega same relationship as you approach expiry ?
Thanks! At expiration, it's a little different since ATM options will still have a pretty high delta, but close to zero extrinsic value means little vega sensitivity. Vega tends to die off at expiration while delta is still alive and well, and is typically contentrated right around the stock price.
your last slide said in put options delta and vega work synergestically.
is it safe to say that with a strong bearish view in low volatility a bear put spread with net debit would work better than a bear call spread with a net credit. in a bear put spread when prices fall we set to gain more as increase in voaltility works in our favor also.in a bear call spread when prices fall gains made would be offset due to options increasing in value due to increase in volatility.
however there's another variable theta which is favoring the bear call spread. how does one chose between the two strategies.
i am currently facing a scenario wherein a bear put spread and bear call spread both have same deltas. theta vega ratio for bear put spread is 3 whereas for the bear call spread is 0.65 .
days to expiry: 18
arpit agarwal You make good points with the debit spread, but with only 18 DTE the vega will be decelerating too much and theta accelerating too much. Better to go with the credit spread imo.
Thanks Mike! Can you do a session on smile Delta pillars?
I will keep that in mind for the future!
Great stuff! Thank you Mike!
I didn't get why a long put has positive vega? can somebody help? Mike talks only OTM?
Long options have positive vega, because if IV% expands, that reflects an increase in option prices across the board. All else equal, that benefits the option buyer.
The chart at 6:50 is incorrect - further to Marvins comment below, the graph shape shows a rapid fall in the middle of the graph, but pretty small declines otherwise - in real life that does not happen. The change in delta and vega is much more smoother. Just go to any modelling software, and if the SPX is at say 3450, look at the delta and vega figures for the strikes of 3450, 3400, 3350, 3300....etc and you will see that these Greeks change much more smoothly.
Yeah in the option chain, but when you have the actual position on you experience compounding of these Greeks. So it's enhances it much more that's why you see such a steep curve
Is it possible to do a session on ATM spot vs ATM forward?
I will keep that in mind for the future!
Is this the reason why we tend to short delta all the time?
Min 7:15, I got lost
Sorry for any confusion! What would you like me to clarify?
It’s just too many words my man