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I just don't understand why ATM gamma increases (ITM/OTM gamma decreases) when vol decreases or time passes. After re-reading the Natenberg section on gamma about 5 million times, I have realized that he just doesn't explain why the above happens (it's him not me :)).

I admit, I started the thread as a way to assist me as I study options. I think I see where I went wrong. IV is an an annual volatility. I thought at first that IV was the vol for the period remaining for the option. So this is the correct way, right? To get weekly vol, I divide the IV...

Harold, you must read Natenberg's book. I am re-reading it - some chapters I've read 4 or 5 times. It is an amazing book. I'm going to read Chriss's book on BS next.

For near the money options the IV is at 30. Seems too high to me. That's what, a move of $60 or so by end of June? Stock has been moving up/down 1 point a day for past 2 weeks.

I see. Makes sense. So, my daily "gains/losses" are the increase/decrease in price of the call, right? From $5 to $15, whatever. Because that will be basically the same, if not more (time value), as the early excercise of the option, right?

Ok, now for my 3rd question. I am bit confused about gains/losses before expiration. Suppose the following (call) - Underlying: 100 Strike: 105 Expiration: June Premium: 5 Let's say I buy the call on May 10. Now suppose on May 20 the underlying rises to $120. Suppose also that...

ATM has high gamma, 50 delta, and so on. If that matches your feel for the market's movement, go fo r it.

Guess you lost on that trade.

Ok makes sense. I guess when Natenberg says "sell the underlying" to reduce delta by 100, he means going short. Thanks. I have another question or two, but am going to try to answer them on my own. If I can't, I will be back :) You guys are a great resource.

Thanks for response. My 2nd question: when Natenberg says to "sell the underlying" to reduce delta by 100, does he mean a) short the underlying or b) sell a share you already own? It would be odd if it is b), because Natenberg never states in his examples that the fictional trader owns...

Ok, I'll start simple for my first question. I just want to make sure that I'm applying Delta and Gamma concepts right. (I'm making up these numbers) Underlying: $100 Strike: $105 Delta: .40 Gamma: .2 Theoretical value: 5.0 So, now, if the stock price increases to $101, then...