Is it fair to think of delta and gamma act like duration and convexity respectively? Maybe you derivatives nerds can poke holes in my theory.
Yes, it is very fair to say that. Delta is the change in value given a 1 point change in the underlier, and gamma is the rate of change in delta (ie, non linear line).
sort of off topic, but here’s something i read the other day… does this sound right to you? the delta of a put option is equal to the delta of a comparable call option minus 1.
ilvino Wrote: ------------------------------------------------------- > sort of off topic, but here’s something i read the > other day… does this sound right to you? > > the delta of a put option is equal to the delta of > a comparable call option minus 1. That’s correct. By comparable the mean same underlying, same time to maturity, same strike price.
Eh, its not exact, but it very close. The main thing to take away from that would be that as a put delta is getting closer to -1, that would mean that a call option is getting farther out of the money, with its delta approaching zero.
That would seem to make sense. Zero sum game. If call was deep in the money delta would be 1…that would leave the put deep out of the money and the delta would be zero.
makes more intutitive sense now - thanks all for the explanations.
Lance, What do you do?
I mostly deal with sales and financial advising. I want to do FI analysis or Investment strategy for my firm, although I just recently started there <1yr ago. We have one of the largest FI portfolios in the US (Insurance premiums) and we also do a lot of Municipal FI. I have all of the requirements for the CFP(cetified financial planner) but I don’t think I want to go that route, so I haven’t taken the comprehensive examination, and am focusing more on the CFA side of things. You?
I co-own a small RIA that does asset managment and financial planning. I went the CFP route several years ago and am now stuck in CFA hell with you…hopefully not perpetually.
True dat!!! CFA is much harder, plus I like the more analytical side of it, rather than memorizing all the stupid estate planning rules and laws and cramming to take the test. I feel like the CFA is much more practical, and takes more intelligence to pass, although both tests probably take the same amount of study effort.
I agree the CFA takes more intelligence to pass and the infomation is much cooler, but I think the CFP material is extremely practical. There is no investment decision that can be made without considering the tax, insurance and estate planning issues. It sound like on your career path that the CFA is much more applicable though. So lets get past this thing!
one thing i wondered… delta on put is negative… then is gamma negative or positive on put. if stock price down, put is up… and delta gets more negative… so that suggests gamma is positive??? i find it confusing… not sure if it’s addressed anywhere.
ilvino Wrote: ------------------------------------------------------- > sort of off topic, but here’s something i read the > other day… does this sound right to you? > > the delta of a put option is equal to the delta of > a comparable call option minus 1. from parity: C+Ke^-rt = S + P take derivative d/dS dC/dS + 0 = 1 + dP/dS => delta of call = 1 + delta of put
hey, thanks for heads-up on delta relationship (put vs. call). good to know. we had these jeopardy tryouts at work (alec trebek was hosting a charity dinner/competition). and we were warming up with a few made up questions. so i asked the guys, highest capital city in world? la paz, bolivia i think. then it was the 3rd question on the exam. the guys were impressed… hopefully same here.
Gamma> 0 both calls and puts.