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'What goes up in crash, de/inflation, and depression?' Tears ? Pain ?

If you 'gamma-scalps' an option, it only makes sens if gamma is worth something. If it doesn't (ie if one leg of your straddle is DITM), gamma is close to 0, and delta won't move enough to make an impact on your delta hedge pnl. That way, it's better "to let the gamma run" or to roll over the...

Why don't you buy a simple call spread 95/110 ? That way you'd know exactly your risk and reward.

Volatility moves much more than for equities for example. In a low volatility context, a marginal variation has a deep impact on every structures based on that kind of option. For example, 1 year implied volty was around 23% in march, and is currently aroud 13% for ATM vanilla options.

Hi, My 2 cents. You would have some thing like a dividend on currency options, that 's foreign interest rate. CME provide european and american style ones. Monthly options are based on quaterly futures. That means october november and december options are based on december future...

Yes it is. A lot of exotic derivatives need extensive calculus/time to be priced. Fast fourier transforms is a mathematical tool to reduce it by improving speeds of convergence.

Yes it's widely used in practice, specially for computer implementations. Like series with functions, discret fourier transforms provide a quick way to reach convergence for series approximations on derivatives pricing. Basically, fourier transforms provide a way to transform time into...

My bad, but I didn't want to be rude :) . It's just there are a lot of threads here on ET about that, so with a quick search you would get what you was waiting for. My point was that there are a lot of more stuffs on Black and Scholes and computer implementations among others on the web...

Yea, it's called Google. 2 or 3 seconds after, it's called Wikipedia, then take a look at 'Computer implementations' and heaven is on earth.

I was kidding Dmo, of course you're right :) The point is how interest rates and dividend are able to skew greeks. That's currency options, and once again, I agree 'those are some funky-ass strike prices' :p

long theta-long vega meant you'd earn money with time decay and if volatility increases. A long straddle will profit from time decay only with european style options that are very very deep in the money. Btw, this way the position remains long vega.

vega $ -7.12 Daily theta $ -0.55 (I did it 10 times :p )

Hi Dmo, Are you sure about that ? Price this risk reversal Maturity december 12 long call 153.6 implied vol 13.5% short put 141.6 implied vol 13.5% spot 148.6 risk free rate 0.9% dividend:1.25% vega =-71 daily theta=-5.52 the same expiration date :)

http://icf.som.yale.edu/pdf/seminars04-05/Maenhout.pdf

No, there is no stupid question about options. Option rules are built on exceptions. Time value is often somehow just a concept.

Donnap is right. Exercise strategies have to consider the cost of a such decision. The point to understand is that positive theta tells you that you will earn later what you could have today. There is no additional money.

Hi, "A simple explanation is that european style options are priced on a forward. Thus, if interest rates are around 10% , spot is 100 and the one year put strike is 200, european option is priced on a forward around 110 (100*(1+10%)) . Hence intrinsic value is 200-100=100 but the one...

It's a pure case of optimal exercise strategies. Theorically, there is no advantage to stay on a position with positive theta as you 're trading american style options. As a matter of fact, current interest rates are so low hence the advantage disappears.

Options exhibit deltas>1 only if foreign interest rates are negative or there are storage costs.

A simple explanation is that european style options are priced on a forward. Thus, if interest rates are around 10% , spot is 100 and the one year put strike is 200, european option is priced on a forward around 110 (100*(1+10%)) . Hence intrinsic value is 200-100=100 but the one year put...