Gamma slip

W

wxytrader

(call option)

Stock price: 23.58
Delta: 0.206
Gamma: 0.031
Premium: 0.87

Forecast
Price drop: 1.40
Delta affect on premium -0.2884 (1.40 * .206)
Resulting premium: 0.58 (0.87-0.28)

Actual
Stock price: 22.18
Delta: 0.121
Gamma: 0.027
Premium: 0.43

Gamma slip: -0.1516 (0.43-0.58)

If you calculated a 1.40 price drop then you would have come to a future price of the option being 0.58 according to the delta, but delta/gamma are dynamic not static.

Do PnL charts factor in this slippage by estimating the change in gamma?
 
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IMHO: Your 'seat of the pants' estimates are what they are.... seat of the pants (implying precision is unimportant, else you would address the question seeking the accuracy you require). Most P&L projections, have the primary error source being the improper accounting of 'forecasted' IV. (The typical handling of forecasted IV is IFF you have no clue, use current IV. While this is not correct, it is sometimes close enough.) {Note: this can be kinda sloppily addressed by assuming sticky delta, sticky strike, moneyness, ... }
 
Wait..Wut??? The troll who starts threads on Black Scholes is BS and claims all you need for Option pricing is ATR and Elliot Wave is now waking up to "Gamma Slip"??

Straight from the numnuts mouth

  • Step 1 is get rid of IV and get rid of all the greeks. The whole system is ambiguous and not even necessary...or accurate.
    More...
    [*]Step 2 use ATR data. We already have all the data available, and it can easily be adjusted to the actual trend.
    More...

Rule number 1 of "ET Club"..

Dont feed the Trolls
 
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stepandfetchit said:
IMHO: Your 'seat of the pants' estimates are what they are.... seat of the pants (implying precision is unimportant, else you would address the question seeking the accuracy you require). Most P&L projections, have the primary error source being the improper accounting of 'forecasted' IV. (The typical handling of forecasted IV is IFF you have no clue, use current IV. While this is not correct, it is sometimes close enough.) {Note: this can be kinda sloppily addressed by assuming sticky delta, sticky strike, moneyness, ... }
More...

This is an actual example of a GME May31 35 call at close yesterday and open today. So the PnL profit line is a general estimate based on current IV levels...if the IV changes then all calculations will be off.

Ie if I had placed a stop at .58 for the price of the option, allowing for a drop of 1.40, I would have been unexpectedly stopped out of my position. This is why volatility is a terrible way to price options...especially since times of high volatility are almost always followed by times of low volatility, so theoretically, the price of an option should be lowest when IV is the highest and visa versa lol.
 
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