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I'm puzzled by what seems to be a reference to OTM options with a delta of 0.5. If the delta is 0.5, then we're talking about ATM options whose gammas will, as originally stated, decline as IV rises. But I don't see what that has to do with OTM options. If you look at the graphic I...

Here you go - here's a slide from a presentation I once did - with a graphic from Shelly Natenberg's book. This should make it clear. Just keep in mind that the gamma curve and the probability curve are essentially the same.

This is very easy to explain if you look at the relationship between volatility and the probability distribution - that is, how likely it is that at expiration the underlying will be ATM, and how likely is that at expiration the underlying will be OTM. It should be intuitively obvious that...

I don't have a pat answer for you, but here are some thoughts. To guide your ratio, I think what you want is the following: (delta of QQQQ options) x (dollar value of QQQQ) = -(delta of MSFT options) x (dollar value of MSFT) In other words, if QQQQ shares are 29 and MSFT shares are 19...

In futures and options on futures - which is to say products regulated by the CFTC - you have risk margining. The exchange sets a "worst scenario" for the following day, and how much your position would lose in that scenario is determined by the SPAN system. That is your margin. In equities...

LOL - I'd completely forgotten I wrote that. Thanks for finding it! The best commentary I heard today on this whole thing was from a legal analyst who said "You don't need a lawyer to explain this to you, you need a psychiatrist."

There's a two-level guarantee process. If a trader loses more than is in his account, the primary clearing member (brokerage firm) is responsible to the extent of its assets. In the VERY unusual case that a primary clearing member defaults, only then would the clearing house be on the hook...

(TRANSFER OF USD21, 500,000.00(TWENTY-ONE MILLION,FIVE HUNDRED THOUSAND ------------------------------------------------------- U.S DOLLARS ONLY TO A SAFE ACCOUNT) ---------------------------------- I am extending this proposal to you in my capacity as Chief Accountant and in full...

That's what I thought you said too. Looking back though I see MTE's right.

Yes, that's the most honest way of doing it - using the actual prices where you can get out. That way you're not kidding yourself. But if the bid-ask spreads are unusually wide, you can probably use prices somewhere in-between. If the market is 3.00 bid at 4.00, you might be able to use 2.20...

You could also consider choosing a data provider and an execution provider separately, to get the best of each and not have to compromise. For example, e-signal has full option chain capabilities. You could pay for their datafeed in order to evaluate options. For the execution you could...

LOL - care to rent out your crystal ball?

Your epiphany is in seeing for yourself the importance of volatility to the value of an option - the higher the volatility, the higher the probable value of the option at expiration and, therefore, the higher its value now. To deepen your epiphany, you could look into some different ways of...

Is it better to buy more time in order to reduce the probability of losing 100%? Maybe yes and maybe no. That decision is the whole art if you're buying options to play the direction of the underlying stock. That's one reason you want to become very conversant with implied volatility, which...

Well, if you know the exact day and hour that the stock will move - and how much it will move - then you can wait until just before the move begins and buy the option then. But those of us who are not quite so astute may have trouble being that precise. I may have a strong belief that xyz will...

Right. As the underlying moves, delta is the rate of change of the option's price, gamma is the rate of change of the delta, and omega is the rate of change of the gamma. We can go on until we run out of greek letters and beyond, but what's the point? I don't see how that's going to help the...

What automated system are you using? A good one should allow you specify that, for example, it buys calls only to the extent that your hedge is bid at your price - guaranteeing that you'll be able to get your hedge off at your price.

That should be easy to eyeball - just look at the prices of calls at different strikes. You should be able to see which will come closest to doubling your money if the S&P hits your target. What you're looking for is a call where price = .5(target-strike price).

You're going to find it difficult to make money buying OTM calls on SPY. Each time the S&P500 goes up, the implied volatility of your long call will drop. Your expected profits - calculated using your option's delta - will vaporize like the illusion they were. That's probably why your...

An option's delta describes the % the price of that option will change relative to a change in its underlying security. The highest possible delta is 1.0, which would be the delta of a deep in the money option. Vega describes something else - the sensitivity of the option's price with respect...