Percent to Double

Quote from sle:

Ahm. You have delta, you have gamma, you have original price. From Taylor expansion, you can describe the change in option value as

Change = UndChange * Delta + .5 * Gamma * UndChange^2

So, solving a quadratic equation (3rd grade, i recon), we get

Double Change = [ -Delta +/- Sqrt(Delta^2 - 2 * Gamma * CurrentOptPx) ] / Gamma
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my eyes just crossed:eek:
 
Quote from DonnaV:
my eyes just crossed:eek:
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Oh, come on, you do know the greeks and you have heard of quadratic equations, haven't you?
 
whoops, thnx for the correction MTE. my geurilla math was wayyy off. a .97 delta option costing 3 bucks would have the underlying increase to over $14 to double that option. wheeww!:)
 
Quote from sle:

Oh, come on, you do know the greeks and you have heard of quadratic equations, haven't you?
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the quadratic equation was one of the few math problems I actually solved reasonably well:p but I'm still using my fingers to count:D
 
MTE,
you're right. I forgot to include one part of the calculation.

((1/Delta)/stock price)*option price

((1/.97)/10.70)*3.4=.327585 or 32.7%
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As I and severals others have pointed out it is still a bs number.
It doesn't account for gamma or vol.

There's really no point in accounting for gamma since gamma itself will change as well as vol. and if we're going to nit pick, then let's not forget epsilon, volga, vanna, speed, charm, and colour.

While we're looking at higher order derivatives we might as well throw in omega and phi since they'll effect both the stock and option prices as well.
 
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