delta depreciation

Quote from tradingjournals:

The expression "I find it useless" and "It is useless" have two different meanings unless the last expression is proved to be true independent of the person making the statement.

I would be interested to read a proof/argument if it is NOT meant "I find it useless".
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Let's go !

I think It's like trying to learn how to sail in a bathroom.

Now if we take Donnap's example,

- a 3 years call 47 with 5% volatility spot 47 with a delta around 0.5173 that is a $1.62 premium (with interest rate set to 0).
Now if you put your interest rate from 0% to 0.1%, your real delta is now around 0.5311 and a $ 1.69 premium.

But if you now derive your call value from that real delta, you would find an approximated value around 2.91, something different from the previous result.

That is : an interest rate rise of just 0.1% will make a final difference of 2.91-1.62=$1.29 (+79.6%). What an approximated value !

In others words, if Donnap gave you a 0.5311 delta for a stock at 47, you would have found a $2.91 call value instead of a $1.69 one.


As I stated: It makes things fuzzy, so its useless.
 
Quote from Jerkstore:

Except that TJ is delusional, and armed with half truths. He claimed to be able to give the option value without knowing the time to expiration--not possible.

Reverse crunching BSM formulas is part of what most models do. It is far from unique, or patentable.
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Delusional? Don't know since I never argue with a crazy person :)

As for the time to expiration issue, the exact value isn't needed to determine the premium for a specific delta. IOW, given your known delta, pick any volatility that you want and adjust the # of days (iterate) until you get a delta match. Or conversely, pick any # of days that you want and adjust the volatility until you get a delta match.

The particular value of each is irrelevant. What's relevant is that the two components yield the known delta. For that delta, the premium will be the same, regardless of what the value of any one component is. Clear as mud?

And the real relevance of this geniosity is that there is no relevance. :)
 
Quote from MasterAtWork:

Let's go !

I think It's like trying to learn how to sail in a bathroom.

Now if we take Donnap's example,

- a 3 years call 47 with 5% volatility spot 47 with a delta around 0.5173 that is a $1.62 premium (with interest rate set to 0).
Now if you put your interest rate from 0% to 0.1%, your real delta is now around 0.5311 and a $ 1.69 premium.

But if you now derive your call value from that real delta, you would find an approximated value around 2.91, something different from the previous result.

That is : an interest rate rise of just 0.1% will make a final difference of 2.91-1.62=$1.29 (+79.6%). What an approximated value !

In others words, if Donnap gave you a 0.5311 delta for a stock at 47, you would have found a $2.91 call value instead of a $1.69 one.


As I stated: It makes things fuzzy, so its useless.
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You are missing the point.
 
What is the point ?
I may miss something so please forgive me if I'm wrong but :

Would you please tell me what is the value of a 0.5311 delta 3 years call strike 47 with a spot at 47 5% volatility using BSM with IR set at 0.1% and the same call value using what you call your trick ?
 
Quote from saminny:

Theoretically, it is the probability of the option expiring in the money however it does not consider any market risk.
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No, it isn't. MasterAtWork made a good point on page 5 - "For every initial level, a forward or a future got a delta around 100% (interest rate set to 0). Does it mean that the future has 100% probability to close above its initial level. Sure it doesn't."
 
Quote from MasterAtWork:

What is the point ?
I may miss something so please forgive me if I'm wrong but :

Would you please tell me what is the value of a 0.5311 delta 3 years call strike 47 with a spot at 47 5% volatility using BSM with IR set at 0.1% and the same call value using what you call your trick ?
More...

I think he's trying to make the point of vol as synthetic time, and sensitivity of delta to changes in vol. My point has been that vanna is not the critical exposure here.
 
Quote from MasterAtWork:

Now if we take Donnap's example,

- a 3 years call 47 with 5% volatility spot 47 with a delta around 0.5173 that is a $1.62 premium (with interest rate set to 0).
Now if you put your interest rate from 0% to 0.1%, your real delta is now around 0.5311 and a $ 1.69 premium.

But if you now derive your call value from that real delta, you would find an approximated value around 2.91, something different from the previous result.

That is : an interest rate rise of just 0.1% will make a final difference of 2.91-1.62=$1.29 (+79.6%). What an approximated value !

In others words, if Donnap gave you a 0.5311 delta for a stock at 47, you would have found a $2.91 call value instead of a $1.69 one.

As I stated: It makes things fuzzy, so its useless.
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Yes, you are missing the point. In the make believe world where there's no carry cost for an optionable American stock, you can guesstimate the premium if you know the delta as well as stock and strike price. On second thought, you didn't miss the point - it is useless.

As I mentioned in another chain, it's mental masturbation :)
 
Quote from sambian:
No, it isn't. MasterAtWork made a good point on page 5 - "For every initial level, a forward or a future got a delta around 100% (interest rate set to 0). Does it mean that the future has 100% probability to close above its initial level. Sure it doesn't."
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I believe this "debate" has been going on forever... How about we describe delta as an "occasionally useful, caveat-prone heuristic for approximating the probability of a call expiring ITM"?

I might add, a la spindr, that this too is mental masturbation.
 
BS Model is just a model. It may or it may not represent reality. Let us then assume that we do not have a model at all, but we have a market that gives us other variables, except price of options which we are somehow not entitled to see.

Could one figure out the prices of options, and if yes could one provide variables and formulas to price the options? We want the prices to be the same as the prices in the market, (we do not see the prices, but we know they are there).

To make things simpler, we assume that carry-related costs are zero.

The clock starts now...I hear the ticks already! :p

:cool:
 
Quote from MasterAtWork:

Let's go !

I think It's like trying to learn how to sail in a bathroom.

.
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We did not see your sailing skills in a bathroom, could you then show us your sailing skills in the "ocean situation" described in the post above (a copy is included below)?


Quote from tradingjournals:

BS Model is just a model. It may or it may not represent reality. Let us then assume that we do not have a model at all, but we have a market that gives us other variables, except price of options which we are somehow not entitled to see.

Could one figure out the prices of options, and if yes could one provide variables and formulas to price the options? We want the prices to be the same as the prices in the market, (we do not see the prices, but we know they are there).

To make things simpler, we assume that carry-related costs are zero.

The clock starts now...I hear the ticks already! :p

:cool:
More...
 
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