wrong delta number?

A

ATM007

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I am learning to trade option and have read some books on it. Last thursday (20070621) I saw the stock index futures contract in our region was closed at 21917. and the 22200 call June option (expiry 20070628) was closed at 122, the broker's software indicated that the delta for this call option is 0.37.

Next day(20070622) when I look at the daily report , I found that the futures contract was closed at 22014 ,up 97 points. Since the delta was 0.37 one day ago, then by definition, isn't it right for me to expect the call option price to be up (22014-21917)*0.37=35.89 points ? But the 22200 call option was accutally close at 130 , only up 8 points.

Have I missed something here? what the call option rose far less than 37% of the futures contract.?
 
some people gave me the same answer. I did not expect the option to be depreciated so quickly. Maybe it is not good to buy an option close to expiry.
 
There are several variables in the price of an option and each impact the change in the price in different ways. In addition some have a greater effect the closer you get to expiration.

If I read your dates correctly you’re only 5 or 6 days away from expiration. If that’s correct then YES the both the delta and the value ( price ) of the option will decay a lot quicker as you’re reaching the peak on the decay curve of both delta and value. Obviously that peak, if you’re looking at it on a 24 hour basis is the last day of the contract. Sometimes firms will break it down in the ½ days but that’s not really important for this discussion.

I have no experience in the Italian markets but in general as stock indexes rise the implied volatilities in the options fall, which of course is another contributing factor as to why Call often under perform their delta. The opposite is also true in that volatility rises as the stock indexes fall and the puts often outperform their delta.

If you’re looking at something like the SPX options ( options on the cash value of the S and P 500 index in the US market) You’ll frequently see days where front month calls actually go down in value when the underlying index is up, and sometimes up fairly significantly. Granted they’re usually the calls which fall on the middle range on the out of the money side of the delta curve. ( Something like the .35 delta down to the .15 delta or so)

Hope this helps a little more..


Jim
 
Thanks, xflat, a nice explanation.

Quote from xflat2186:

There are several variables in the price of an option and each impact the change in the price in different ways. In addition some have a greater effect the closer you get to expiration.

If I read your dates correctly you’re only 5 or 6 days away from expiration. If that’s correct then YES the both the delta and the value ( price ) of the option will decay a lot quicker as you’re reaching the peak on the decay curve of both delta and value. Obviously that peak, if you’re looking at it on a 24 hour basis is the last day of the contract. Sometimes firms will break it down in the ?days but that’s not really important for this discussion.

I have no experience in the Italian markets but in general as stock indexes rise the implied volatilities in the options fall, which of course is another contributing factor as to why Call often under perform their delta. The opposite is also true in that volatility rises as the stock indexes fall and the puts often outperform their delta.

If you’re looking at something like the SPX options ( options on the cash value of the S and P 500 index in the US market) You’ll frequently see days where front month calls actually go down in value when the underlying index is up, and sometimes up fairly significantly. Granted they’re usually the calls which fall on the middle range on the out of the money side of the delta curve. ( Something like the .35 delta down to the .15 delta or so)

Hope this helps a little more..


Jim
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