- For each one point increase in the underlying price, the value of the delta is added to the value of the option.
- Conversely, for each one point decrease in the price of the underlying, the value of delta is subtracted from the value of the option.
- The delta of call options is always positive (0 to 100) and the delta of put options is always negative (0 to -100).
- The delta of an at-the-money option is approximately .50 (calls) or -.50 (puts).
- The delta of an option at expiration is either 0 or 100 (-100 for puts).
- For each one point increase in the underlying price, gamma is added to delta.
- Conversely, for each one point decrease in the price of the underlying, the value of gamma is subtracted from delta.
- For all positive theta positions, gamma is always negative.
- Conversely, for all negative theta positions, gamma is always positive.
- For out-of-the-money positions such as condors, gamma is generally small compared to delta and inconsequential, whereas gamma is generally larger and has bigger associated risk for at-the-money positions such as calendars.
- For each day that passes, the value of theta is added to the value of the option.
- Long option positions are theta negative (lose time value each day), while short option positions are theta positive (gain time value each day).
- For longer term options, theta decay is slower, conversely shorter term options have faster theta decay.
- For every 1% volatility increase in the underlying asset, the value of vega is added to the value of the option.
- Conversely, for every 1% volatility decrease, the value of vega is subtracted from the value of the option.
- The impact of volatility changes is greater for at-the-money options than it is for in- or out-of-the-money options.
- The impact of volatility changes is greater for longer term options and less for shorter term options.
- Changes in vega can have more impact (i.e. you should worry about it more) for multi-month spreads (calendars, diagonals) than for single-month spreads (verticals, condors). Konkrétne: zvýšenie volatility sa výraznejšie prejaví u opcií s dlhšou expiráciou. Preto sa také opcie snažíme kupovať, keď je IV nízka.
- For every 1% increase in interest rates, the value of an option increases percentage-wise by the value of rho.
- For example, if the rho of an option is 2.5, and interest rates increase by 1% ,then the value of the option increases by 2.5%.
- For two reasons, you can usually ignore rho for most practical purposes. First, interest rates don’t change that often, and second, for short term options, rho is small and doesn’t have much effect.
- Rho is more important for long term options such as LEAPs.
Sheridan Options Mentor