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Delta is a number, and numbers are not directional. The word "directional" often is used to refer to the effect of market movement on the value of the position. What I am trying to figure out is how to get a position that has a very small delta when the underlying moves in one direction, and...

Does IB offer variance swap?

Not a typo. As time or volatility increases, ITM and OTM option deltas approach 0.5, whereas ATM delta remains at 0.5. The intuitive way I think about it is: as volatility (entropy) increases, it is easier for option price to jump to ITM or OTM territory across the ATM boundary; if volatility is...

Sorry for the confusion. Yes, I do mean the delta.

Thanks for the suggestion. By "forward value," I assume you mean the value at T=(Dec 2008), which is what everybody thinks DJX will be at time = T. If T=1.5 (year from today), DJX today is at 135.57 and has IV of 14.67% today, then 135.57exp(0.1467*1.5) = 169 (value too high) Using...

In theory, as time till expiration increases, ITM and OTM options should asymptotically approach absolute value of 0.5 (half unity). I am looking at DJX Dec 2008 put options. Today, 5/18/2007, DJX is at 135.57. The ITM put with strike of 136 has delta of -0.253; and the 147 put has delta of...

Thank you for your reply. But the fact that IB does not charge commission on exercise is what I don't understand. Why would IB do free labor? They charge me to cancel a transmitted but unexecuted order, why don't they charge exercise? What is in it for them?

A related question: is the transaction cost of an exercise equal to the commission of buying or selling the corresponding number of the underlying? E.g., if you exercise or are exercised one call, is the commission equal to that of buying or selling 100 shares? My understanding is that exercise...

In my opinion, which is an opinion only, selling calls is less risky than selling puts. The reason behind selling puts is that stock can go down only to zero, but can go up indefinitely, or the investor just wants to gain some time premium while waiting for the underlying to fall. The reason I...

I have tried very hard to hedge my option positions. Sometimes I am successful, but the reward significantly diminished. Having traded various strategies, I am convinced of market efficiency, and having significant reward with very little risk is extremely unlikely because of the No Arbitrage...

Well, 10% of Dow right now is 1300 points. Imagine Dow drops 10% in a day.

No doubt there is increasing financial efficiency and sophistication in the recent years; an evidence is the low long term (30 year mortgage) interest rates. My Doomsday pictures is, for instance, the Dow gapping 1000 points past most reasonable stops, which would not offer any material...

I looked back at the 1927 and 1987 crash. All the major indices lost 1/4 to 1/3 of their values in a few days. In today's terms, that is similar to the Dow losing 3000 to 4000 points in a day. This may be a black swan, but if one is not careful, wealth accumulated in a life time can be wiped out...