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Not quite. If the implied volatility in the oil calls is the same as what future volatility in the oil spot is GOING to be, then if you keep selling those calls, again and again, then over the long run, you will neither gain nor lose money - expected outcome = zero. Maverick - I'm...

Maverick We agree completely. Osho That's £ 15 per contract, less clearing and comms. I personally wouldn't touch it with a barge poll, but if you're comfortable then fine. Good luck.

Some free software here; http://www.hoadley.net/options/options.htm Using a 9% spot vol, the chances of them expiring ITM is less than 1 in 10,000. However, if the index dropped 400 points and IV doubled to 18% those Puts would suddenly be worth 78p. How would you cope with that ?

Hopefully not ! But surely you must appreciate that near time DOTM options are highly leveraged monsters ? I'd be a buyer of those, not a seller. It might seem like money for old rope until the sh*t hits the fan. As an example, a mate of mine bought some FTSE puts, about 100 points OTM...

Thanks, with you now. Certainly agree that option trading is a zero sum game. On the subject of delta probability..... I wouldn't use an option delta to determine a probability of ITM at expiry for 2 reasons.... Firstly, delta changes as a function of implied volatility and since each...

Need a bit more meet on the bones maverick. What are you on about ?

Sorry, I'd only picked up the back end of this thread - gotcha. Agree your last paragraph. Perhaps the best way to gamma trade (if there is a best way) would be to program trade, thereby eliminating human emotion - set a delta limit and just leave it.

With ya so far. Why ? Surely the spot vol need only be higher than the implied volatility purchased for "successful" gamma trading ?

It’s an interesting debate – who has the edge, writer or buyer. Mathematically it’s very easy to see, it’s simply a case of looking at volatility, implied and historic. If implied is higher than historic then the writer had the edge. For example, if you sold a one month option at IV 10%...

kartik_subbarao Using the delta as a probability is very crude. The delta will vary as a function of the implied volatility on the option - as option IV changes so does the deltas, and since option IV is skewed across the strikes, which IV figure would you use ? Secondly, the delta or...

Appologies, thought he was a buy-hold man. Yep, agree high gamma - gives a big bang for your buck, but the rent is high (Theta). Horses / courses, risk / reward.

But the opposite of gamma is Theta and so high gamma = high theta. If I wanted to go long options purely as a substitute to buying the underllying (e.g. buy & hold) I'd want a high delta and low gamma, i.e. DITM and far dated. Obviously I'd want low IV too if I could get it, but the deeper ITM...

The scan risk might be the same, but the liuidation value of the call will be more than the put. So total margin requirement will be more for the call than for the put. At least that's the case using risk based margining (SPAN), maybe different with rule based margining.

nonprophet I hadn't noticed the attachment on page 7. I've copied the formula from there and you're right, it works ! Thanks.

nonprophet I refer you to page 2 of this thread, from which I copied and pasted into VBA. Your <b>prob_hitub</b> does not feature there. I can see that I should have been using ProbMaxPTUB rather than ProbPTUB for the example I gave above. But neither formula will work anyway.

gbos As an example, I’m trying to determine the probability that a stock will touch a given price at any time during a specified period; Stock Price 500 Up Barrier 550 Time 6 months Volatility 20% Drift 4.75% The calculation works fine in your compiler (53.3% prob), but in Excel...

gbos I've just started to work those formulas you posted. I can't get any to work. I think the problem may be in the Snorm function ?

How close depends on the volatility and time to expiry. It's close enough for fairly low volatilities and near time options. But becomes less accurate as volatility increases and time to expiry increases. The definative probability that an option will expire ITM is N(d2) of the BS model and...

gbos Brilliant ! Many thanks.

I too am looking for a formula that will calculate a probability that a stock / index price will “touch” a level at ANYTIME given Spot price / Target price / Time to Exp / Volatility. The calculator links above are useful, but not what I’m looking for – I need the formula(s). There is...