Maybe you can check your assumptions again. A higher gamma means that the delta of the short term call goes to zero quicker than the delta of the long term call. And as we all know the lower the delta the less an option is worth. So in this case the short term option loses a lot more percentage wise if the market goes down than the longer term option.
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There's no difference buying short term options vs. buying LEAPS?
- Thread starter crgarcia
- Start date
Maybe you can check your assumptions again. A higher gamma means that the delta of the short term call goes to zero quicker than the delta of the long term call. And as we all know the lower the delta the less an option is worth. So in this case the short term option loses a lot more percentage wise if the market goes down than the longer term option.
That's because you are not viewing the option as a derivative of the underlying.Quote from The Dutchman:
Maybe you can check your assumptions again. A higher gamma means that the delta of the short term call goes to zero quicker than the delta of the long term call. And as we all know the lower the delta the less an option is worth. So in this case the short term option loses a lot more percentage wise if the market goes down than the longer term option.
What you say is true only if the option is viewed as a stand alone investment.
But as we are speaking of "investment", it's the risk/reward on the underlying that is important... as certainly there must be a view to possibly exercising at some point.
Quote from wayneL:
That's because you are not viewing the option as a derivative of the underlying.
What you say is true only if the option is viewed as a stand alone investment.
But as we are speaking of "investment", it's the risk/reward on the underlying that is important... as certainly there must be a view to possibly exercising at some point.
Could you please explain what you mean by showing me an actual example?
Quote from The Dutchman:
Could you please explain what you mean by showing me an actual example?
I'll use synthetics to illustrate.
You own 1000 XYZ and want to hedge it, so you decide to buy 10 puts. So comparing a nearer term put to a LEAPS, the nearer term put has greater gamma, less loss potential and greater profit potential within the term of that put, compared to the put LEAPS. (A function of the cheaper price).
We know these are just synthetic calls. Therefore the pure call must in the same way be viewed in terms of its underlying.
This, I believe is Taleb's point.