Delta Option and Time to expiration As time passes, the delta of in-the-money options increases and the delta of out-of-the-money options decreases. Delta Option and Volatility As volatility falls, the delta of in-the-money options increases and the delta of out-of-the-money options decreases. Useful to know
As the time to expiration draws nearer, the gamma of at-the-money options increases while the gamma of in-the-money and out-of-the-money options decreases.
There is a little part regarding delta hedging where CFAI mentions delta hedging options with other options. Lets say dealer shorted c1 , so he goes long c2 on the same underlying, but might be different exercise price or time to maturity. So you take the ratio of Delta c2/Delta c1 to find out how many c2 you need to long to hedge short c1s. After months of studying, I saw this only today. Arrggghhh!!
comp_sci_kid Wrote: ------------------------------------------------------- > As volatility falls, the delta of in-the-money > options increases and the delta of > out-of-the-money options decreases. > > Useful to know won’t delta of in-the-money option decrease due to a decrease in volatility ? confused.
^no b/c its already in the money. the Delta is MOST sensitive when its At the Money.
i hate options. give me swaps any day
think of it this way. an option can be looked at with an ormal curve (draw one now). on the bottom put the potential expiry price of the underlying from -infinity to positive infinity. choose a strike price. now, lets just take the in the money option example. if volatility decreases then delta will increase. Why? because if volatility is lower, there is less of a chance (as measure by the normal curve) for the option to now finish out of the money. If the chance of the option finishing out of the money is less, then delta will increase becuase we know that for an option FAR in the moeny, the change in underlying and chance in the option price (delta) will essentially be 1:1…so for an option in the money, as volatility decrease the option and the underlying will show greater correlation. Change volatility for time in the paragraph above and the same argument holds.
but remember delta of slightly at the money option will initial decrease with time to expiration. Key word here SLIGHTLY. CFAI gives this example so make sure if the statement says “Delta for atm options will ALWAYS increase with Time to Expry” that is incorrect
really? explain for this slightly at the money scenario. i would’ve assumed otherwise. my only guess would be due to transaction costs?
Joey could probably explain, i just read what CFAI says in the foot note 
thank you. great explanation striker… i think i’m getting the hang of it. i need to revise options once again
All else equal, delta decreases with time. This is referred to as theta. Manager will sell off shares to maintain the delta hedge position. Delta increases with increase in stock price: the overall position does not change but manager will need to buy shares to maintain the hedge position. Delta decreases with decrease in stock price: overall position does not change but manager can sell shares to maintain hedge.
jimmylegs Wrote: ------------------------------------------------------- > All else equal, delta decreases with time. This > is referred to as theta. Manager will sell off > shares to maintain the delta hedge position. > Disagree > Delta increases with increase in stock price: the > overall position does not change but manager will > need to buy shares to maintain the hedge > position. > > Delta decreases with decrease in stock price: > overall position does not change but manager can > sell shares to maintain hedge.
jimmy here’s the hedge forumula. # options = # stock / Delta. delta increases with time therefore the # of options you need to maintain a hedge decreases. OR the amount of stock you need increases.
jimmy, you are citing schweser, as i stated, it depends on moneyness of the option.
comp_sci_kid Wrote: ------------------------------------------------------- > but remember delta of slightly at the money option > will initial decrease with time to expiration. Key > word here SLIGHTLY. CFAI gives this example so > make sure if the statement says “Delta for atm > options will ALWAYS increase with Time to Expry” > that is incorrect I would have said it is correct. Hmm…
JoeyDVivre Wrote: ------------------------------------------------------- > comp_sci_kid Wrote: > -------------------------------------------------- > ----- > > but remember delta of slightly at the money > option > > will initial decrease with time to expiration. > Key > > word here SLIGHTLY. CFAI gives this example so > > make sure if the statement says “Delta for atm > > options will ALWAYS increase with Time to > Expry” > > that is incorrect > > I would have said it is correct. Hmm… CFAI plays tricks on me 
page 210 vol 5, footnote #33 on the bottom of the page)
comp_sci_kid Wrote: ------------------------------------------------------- > Delta Option and Time to expiration > > As time passes, the delta of in-the-money options > increases and the delta of out-of-the-money > options decreases. > Delta Option and Volatility > > As volatility falls, the delta of in-the-money > options increases and the delta of > out-of-the-money options decreases. > > Useful to know Where did you cite this from? I am Schweser mislead, B4.177. I was wondering where you read this regarding differences in out of money and in the money for delta changes. Thanks!
CFAI gives this example so > > make sure if the statement says “Delta for atm > > options will ALWAYS increase with Time to > Expry” > > that is incorrect Remember - with CFAI anything that says ALWAYS is WRONG
Also in CFAI Delta can only be 1 @ expiration when the option is in the money Delta can only be 0 @ expiration when the option is out of the money