Saturday, May 18, 2013

The Grand Summary of Effects of Prices, Time, Volatility on Option Greeks - Part 1

I had thought I had necessary understanding of the effects of stock prices, strike prices, time to expiration and implied volatility on option Greeks. But after some more study, I realized that I need to know more details about their effects on major option Greeks such as Delta, Gamma, Vega and Theta. Today, I had some time to finish the 1st part of my study and posted here to share with everyone who may be interested. I have  not seen this kind of table in any option materials yet. Hopefully, it will be helpful for the people trading options on the Greeks.

As you can see, I'll need to complete the other cases where stock price and volatility go down. After that, I'll review my past posts related to option Greeks and make sure they are consistent with this table.

Update: The Gamma changes against time elapse need further review. It's common knowledge as expiration gets closer, Gamma risk become larger. Thus, the ATM strike Gamma must be increasing a lot faster than the OTM Gamma decreases. Also it's possible that really far OTM Gamma decreases while closer OTM Gamma may not decrease. In this way, an OTM portfolio will have Gamma increases over time.

The subject of option Greek changes against time, price and volatility for a premium selling portfolio requires a series of studies in the future and I'll post it as I progress.

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