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Option Question about Delta
- Thread starter the
- Start date
Quote from Martinghoul:
Indeed! Truly stunning insight right here, innit? I guess we've all underestimated bwol, haven't we? Must be the CFA curriculum (as well as the Wheaties he had this morning)...
It is the CFA Curriculum's definition of Delta I used. I don't know of any other gold standard credential that you could dispute whether or not I know the definition.
Probability has nothing to do with it. As I've said, it's the dollar move the option will move for a $1 change in the underlying.
I am sorry Beau, but if that is the CFA definition, then the CFA is wrong. You can easily verify this yourself. Price a 30 day 0.50 delta call on a $1.00 stock. Then change the price of the stock to $2.00. You will see that the value of the call increases by much more than 50 cents even though the change in the underlying's price was only $1.Quote from bwolinsky:
As I've said, it's the dollar move the option will move for a $1 change in the underlying.
Delta is the first derivative of the option price with respect to the underlying price. For a high enough priced stock, your CFA definition is an ok approximation, but even then you'll be off by a little.
Whatever you say, mate...Quote from bwolinsky:
It is the CFA Curriculum's definition of Delta I used. I don't know of any other gold standard credential that you could dispute whether or not I know the definition.
Probability has nothing to do with it. As I've said, it's the dollar move the option will move for a $1 change in the underlying.
Quote from Kevin Schmit:
For a high enough priced stock, your CFA definition is an ok approximation, but even then you'll be off by a little.
That is because ATM delta is NOT 0.5, and also because of gamma. No purprise there, his definition is still valid it you replace $1 move by an epsilon (and divide result by the same), or by pricing it for a stock price of 999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999. Tired to continue pressing the 999999999999999999999999.....................
Quote from Kevin Schmit:
I am sorry Beau, but if that is the CFA definition, then the CFA is wrong. You can easily verify this yourself. Price a 30 day 0.50 delta call on a $1.00 stock. Then change the price of the stock to $2.00. You will see that the value of the call increases by much more than 50 cents even though the change in the underlying's price was only $1.
Delta is the first derivative of the option price with respect to the underlying price. For a high enough priced stock, your CFA definition is an ok approximation, but even then you'll be off by a little.
I've not seen any case where the move wasn't represented well by this use of the delta approximation.
It's not meant to predict ITM probability, but is the dollar move the option will move for a $1 change in the underlying.
The CFA is not wrong, and there is no $0.50 delta on a $1 stock. That's generally not what delta would be used for, and a gross misexample. There are extremely few stocks even with options if they're less, and, as far as that's concerned, it will work for any stock above that level.
Quote from bc1:
Us guys with little accounts still use McDonalds. They do have wifi. Set the date and time.
some of us have even less money than that - can we have virtual coffee instead like type of coffee in goog and look at images maybe?
i only responded b/c this thread is rapidly descending into the lower depths of uselessness. two people can have diff def of delta and its usefulness but the arguing back and forth is not value added.
hmm, CFA you say? ... you got a stock priced at $20 and a vanilla european call struck at $20 ... the stock pays a scheduled dividend of $1 (as per CFA curriculum) and thus moves down by $1 to 19$ ... what do you think the delta of the call is on the day before div? what is it on the ex-div date? how much does the price of the option move on the ex-div date?Quote from bwolinsky:
but is the dollar move the option will move for a $1 change in the underlying.