Need Help With Greeks Computation

Quote from ra1:

Hmm, if what has been said so far is correct (see deringer's post) then it seems that a 1% increase in iv (vega +0.0008) will almost double the value of your put (from 0.0009 to 0.0017) - pretty impressive for such a tiny iv change. On the other hand theta is -0.0002, so for each passing day you lose almost 25% of your option value (0.0002), so after about 5 days your option is worth almost nothing - seems rather extreme for such a long dated option. I suspect something isn't quite right here.
ra1
More...

You're right. His Greeks are off. Not sure how he got those #'s.
 
Quote from slapshot:

need some help with the proper math in order to ascertain what would approximately happen if the underlying were to move .0100 in the direction of the trade and also .0100 against the trade....
More...
With the emphasis on approximately you can use a leverage Calc....

<font color=#ffffff>……....................……………………</font color>Underlying Price
Leverage = Option Delta x ------------------------
<font color=#ffffff>……......................……………………</font color>Option Price

Which gives the option percentage change per percentage change in the underlying.

<font color=#ffffff>……....................……………………</font color>1.2250
Leverage = -0.1273 x ------------------------ = 17.32%
<font color=#ffffff>…….....................……………………</font color>0.009
.
So for each 1% change in the underlying, the option will change value by 17.32%, 2% underlying change and the option changes by 34.64% and so on....reasonable approximation to about 3% underlying change.

BTW, if you can calculate the greeks, why can't you calculate the precise option ThVal for a given underlying change ?
 
Profitaker
But that's the point - the difficulty is working out the greeks, or interpreting them, for an option that is
1/ european style?
2/ has multipliers.
The greeks given and the subsequent calculations based on them just don't make sense (if you look at the previous posts you'll see what I'm talking about).
ra1
 
Quote from ra1:

But that's the point - the difficulty is working out the greeks
More...
Oh yeah, something wrong somewhere. Put Option with that Delta can't be worth that price. Anyway, he's got a rule of thumb calc now, which is what I think he was asking for.

Quote from ra1:

On the other hand theta is -0.0002, so for each passing day you lose almost 25% of your option value (0.0002)
More...
Don't know if you know this but Theta is normally quoted annually. So the daily decay rate is Theta/365.
 
Hi profitaker
I was just going by L. Mcmillan's book "options as a strategic investment" 4th ed. page 862 where he gives an example of theta "if an option has a theta of -0.12, that means the option will lose 12 cents PER DAY". Also all the pricing models I have used give me theta as a per day value. Also, from a practical point of view, who could be bothered working out daily theta by dividing by 365 - it's a lot easier if it is given as a daily value, and that is indeed what is provided by brokers, option models etc..
But maybe I'm missing something, if so I'll have to return my copy of Mcmillan, lol.
ra1 :)
 
Quote from ra1:

Also all the pricing models I have used give me theta as a per day value.
More...
Fine, it's just that the value (0.0002) looked too big to be a daily decay as you suggested, and I wondered whether the original poster calculated the annual Theta by formula. Most published Theta formulas solve for annual decay.
 
Quote from Deringer:

You're right. His Greeks are off. Not sure how he got those #'s.
More...




These Greeks came directly from IB optiontrader screen - they should be right.

This is why I needed help with the math on this. You were exactly right, the underlying market moved in my trade's favor almost exactly EURUSD 1.0000, and the last bid/ask I saw on the puts on Friday was .0016 - .0020 (split of .00175) so your call of about .0017 was very close indeed.

But since there is still well over 30 days to expiration, there is no way they will lose 25% value each day. More like 2.5% I would think.

Some of the confusion for me comes from the 4 places after the decimal on currency. This is why I was asking if someone like Deringer who correctly calculated the price after a 1.0000 move could be gracious and generous enough to write out the math in simple terms. I am too dumb for anything fancy.

Thanks to all who have helped so far.

Paul
 
Quote from Profitaker:

Fine, it's just that the value (0.0002) looked too big to be a daily decay as you suggested, and I wondered whether the original poster calculated the annual Theta by formula. Most published Theta formulas solve for annual decay.
More...


No I wrote this theta down direct from the IB quote screen - so do you think it is annual?

In that case, would you simply 0.0002 by months or days and if so, what would that look like formula wise?

Thanks,
 
Quote from Profitaker:


Don't know if you know this but Theta is normally quoted annually. So the daily decay rate is Theta/365.
More...


So is that figure then interpreted as a daily amount of price decay or a percentage or what?

(once again, all the extra zeros confuse me)


-.0002 / 365 = 0.0000005
 
You must log in or register to reply here.
Back
Top