Questions about Options

[aphexcoil]

Thank you in advance for answering.

1) Are DITM options controlled by MM's? Does there exist a purely electronic market where I can purchase a DITM option at the price quoted at the ask and be assured a quick fill?

2) Concerning the "6 levels of risk" of an option, what is the sixth called? I know Vega, Delta, Gamma, Theta and Rho -- what is the sixth? Is this the Gamma of Gamma -- and is this important for people like Metooxx?

3) Is the VEGA of an option always greatest for ATM options? How does VEGA change in response to price movement of the underlying?

4) If a stock suddenly falls (THC) with a much greater than three standard deviation movement, will VEGA be greater for PUTS than CALLS?

5) When volatility is factored into options, why isn't the same formula used for all classes of a specific option (i.e. QQQ). Why are there discrepancies in THETA and VEGA? If a model is designed to model the underlying's price movements, how come all the options on a certain time series do not follow that model?

6) Is Gamma merely the second derivative of the black-sholes model?

7) Do any option models take into account the volatility of volatility?

Thanks in advance!

 

[Mercury77]

Quote from aphexcoil:

Thank you in advance for answering.

1) Are DITM options controlled by MM's? Does there exist a purely electronic market where I can purchase a DITM option at the price quoted at the ask and be assured a quick fill?

2) Concerning the "6 levels of risk" of an option, what is the sixth called? I know Vega, Delta, Gamma, Theta and Rho -- what is the sixth? Is this the Gamma of Gamma -- and is this important for people like Metooxx?

3) Is the VEGA of an option always greatest for ATM options? How does VEGA change in response to price movement of the underlying?

4) If a stock suddenly falls (THC) with a much greater than three standard deviation movement, will VEGA be greater for PUTS than CALLS?

5) When volatility is factored into options, why isn't the same formula used for all classes of a specific option (i.e. QQQ). Why are there discrepancies in THETA and VEGA? If a model is designed to model the underlying's price movements, how come all the options on a certain time series do not follow that model?

6) Is Gamma merely the second derivative of the black-sholes model?

7) Do any option models take into account the volatility of volatility?

Thanks in advance!

Hi

I try to answer your questions ( I am an option marketmaker at euronext amsterdam.

1) I think you mean with DITM= deep in the money? And in Asterdam they are controlled bij marketmakers and you can hit or lift the price on the screen for the size that is quoted ( Amsterdam is electronical) but I don,t know how it is in the United States.

2) Dividend risk is a great risk when you are a marketmaker with big positions so I think that is the sixth risk you are talking about.

3) Vega is alwayst the greatest for ATM options and the longer the lifetime of the option the higher the vega. If the price moves the new ATM option will have the highest vega.

4) no puts and calls with the same exercise price have most of the time the same vega, but when there is dividend in a Stock and the call is an early excercise then the put has a higher vega.

5) this question I don't really know what you try to ask.

6) gamma is the second derivative of the delta so gamma is the change of the delta with a move in the underlying value.

7) I don't think so.

You should really read the Natenburg book it covers a lot of your questions. If you have more questions about options just let me know.