Keeping track of deltas

[Profitaker]

“Prof,
NO confusion my end!”

Good, Can we assume that you now understand the difference between Option Delta and Position Delta ?

“Writng DOTM ONE LEG PUT [Eu style ftse index] Options wiv 1-3 mths to expiry gives you the edge over the BUYER!! And 80 % chance the position WILL xpire WORTHLESS!!! and the writer gets to KEEP ALL THE PREMIUMS! “

Edge is not determined by how far OTM or how far out in time you trade. Edge (or advantage) is determined by the Implied Volatility that you Sell (or buy) Verses the future volatility in the underlying asset. BUT future volatility cannot be known in advance, only after the options expire, when it then becomes Historic Volatility (HV). Only when HV is known can you state categorically who had the edge. IV/HV determines the edge, nothing else is a factor. But It becomes much more complicated when you look at the underlying asset distribution which may not actually be a perfect normal distribution. For example, it may exhibit “fat tail” (positive Kurtosis) which is why DOTM equity and index options trade at a higher IV than ATM.

Is there anything else you’d like explaining before I send you my invoice ?

 

[Pitscum]

jerky,

ts that 20% of time when you blow out i like. thats odds of 1 time in 5 you blow out far beyond the tiny premium you have written.

as for your generous offer. it means nothing to me..i was volatility trader..therefore, i traded option on option , delta neutral. taking an opposite side to you on one strike is about as meaningless as they come and further underline your complete bigotry in all things to do with derivatives. i cant see any point in explaining this to you further because you're not he brightest of chappies as profitaker as exposed with far more clairty and patience than i have for you in his excellent post which you should read, you might even learn something.


and who do you broke through. id love to know.

 

[bulldozer]

This info below is NOT for Profitaker,wal or pitscum!
This post is for the viewers ONLY!

The first and most commonly used greek is "delta". For the record, and contrary to what is frequently written and said about it, delta is NOT the probability that the option will expire ITM. Simply, delta is a number that measures how much the theoretical value of an option will change if the underlying stock moves up or down $1.00. Positive delta means that the option position will rise in value if the stock price rises, and drop in value if the stock price falls. Negative delta means that the option position will theoretically rise in value if the stock price falls, and theoretically drop in value if the stock price rises.

The delta of a call can range from 0.00 to 1.00; the delta of a put can range from 0.00 to –1.00. Long calls have positive delta; short calls have negative delta. Long puts have negative delta; short puts have positive delta. Long stock has positive delta; short stock has negative delta. The closer an option's delta is to 1.00 or –1.00, the more the price of the option responds like actual long or short stock when the stock price moves.

0.00 = ZERO. DOTM = delta ZERO

Bull

 

[Profitaker]

Glad you're reading up on options Mr.B

And here's the link...

http://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonGreeks

Delta is never 0.00 or 1.00, it can be 0.00000023 ot 0.99999999134 for example. There is a difference.

 

[bulldozer]

Dear viewers,

There has been many times when the Footsie has moved down and the price of a PUT option has NOT moved a fraction of a Dollar or Pound £.

With a short PUT DOTM on ftse index:

1. The writer WINS if footsie goes UP! Buyer lose.

2. Moves sideways writer wins! Buyer lose.

3. Moves down writer WINS! Buyer lose

4. Footsie xpires anywhere ABOVE strike writer WINS! Buyer lose

5. Footsie expires at the strike level writer WINS! Buyer lose

6. Footsie expires 50 pts below strike writer WINS! Buyer lose

7. Not all brokers allow people to write PUT OPTIONS. Some brokers insist on a verbal test first.
What is the value of one dime in a $1,000 or the value of 00000000.1 of a £$£$£$ the answer is NOTHING!!! anything with more than 2 zero's as first digits = zero compared to a £$£$£$
What is one/two grape missing from a bunch of grapes = zero NOTHING!
I would not stop and bend over to pick up a penny from the street/road because the value of that penny is ZERO to me! I leave it there for people like PROFITAKER TO HAVE! He obviously thinks its worth stoping to pick it up!

Bull
PS: This post is NOT addressed to you Mr Profitaker

 

[bulldozer]

you remind me of a bloke called paul gleason...he was a naked put seller, got carried out once while clearing through union cal; last carried out after the 9/11 attacks when i believe he used mako as his informative broker....you and him have the exact same trading style and lack of options knowledge. oh, he was a loser too.

ps.....we have, however, established where beef jerky cuts and pastes his verbal cascades from. anyone need to hire him for a master class?form an orderly queue.top dollar profitaker!

==========================================================

SCUM,
RE: [THINK OR SWIM] copy and paste:

AND YOUR POINT IS?

Think or swim also agree wiv me that there is such a thing as DELTA ZERO on ONE PUT leg position! What is the value of 2 grapes from a killo bunch? :cheesy: answer is ZERO :cheesy: But you 2 obviously think those 2 grapes have important value :cheesy:

Thats why i put it there!!! to see if you can also see what many viewers can see!

Like i said before!! You just keep on buying Options and i will continue writing them! And when you do win ? WE [the writers] will ALWAYS pay up! In the same way the bookies and SB firms do! Dont worry about how we will pay up thats OUR concern not yours!

Happy trading and have a happy life!! By the way thanx for sending those 2 PM's and yes i did read them! and NO i will not give you the info you want to know! Sorry thats my personal and private affairs i share only with a few people and your not one of them.

And its GOOD bye from me!

Bull

 

[wal]

Bull

You've just walked into the most benevolent casino in the world and they give you 10k to play with and a choice of either:

1/ plonk it all on either red or black for 1 spin only. They'll pay you 1/10 on both read and black...a guaranteed win. But, you have to sit there for six hours waiting for the croupier" to spin.

2/ plonk on red or black and play as much as you like for 6 hours. You may devise your own staking plan - money management etc. But they'll pay you 2/1 when you win (remembering black or red is a 18/37 chance)

(I'd been looking everywhere for a casino like this, found out they don't call them casinos, they call them exchanges )

Which would you choose?

Cheers

PS not really expecting an answer, just evasion, condesension or abuse...perhaps all 3 LOLOL

 

[bulldozer]

Wal,

There is option 3:
Or be the owner of the casino for 6 days.

I'll go for option No 3.

Bull

 

[bulldozer]

Wal,

as i said before I'm a reciever NOT a payer!!

Ask the other 2 guy's which option they will chose ? and whats your choice?


Bull

 

[Profitaker]

Bull

You've just walked into the most benevolent casino in the world and they give you 10k to play with and a choice of either:

1/ plonk it all on either red or black for 1 spin only. They'll pay you 1/10 on both read and black...a guaranteed win. But, you have to sit there for six hours waiting for the croupier" to spin.

2/ plonk on red or black and play as much as you like for 6 hours. You may devise your own staking plan - money management etc. But they'll pay you 2/1 when you win (remembering black or red is a 18/37 chance)

(I'd been looking everywhere for a casino like this, found out they don't call them casinos, they call them exchanges )

Which would you choose?

Cheers

PS not really expecting an answer, just evasion, condesension or abuse...perhaps all 3 LOLOL

Option 1) go home with $ 11,000

Option 2) Expected outcome $ 67045. This having run 4 x 50000 MonteCarlo simulations, and assuming a bet every 3 minutes, 120 bets in total.

Option 3) What a plank !

 

[bulldozer]

Thats why you're broke Bull. I wouldn't want to be the owner of this particular casino. Ahahaha

Honestly you must make better decisions.

Cheers

====================================================================

Wal,

I'm thinkin about the REAL CASINO and NOT the scenario that you give!!!

I'm a realist and not some jerk that think like monkeys.

The graet majority of casinos,bookies and SB firms make profits at the end of EACH tax year! even when they pay out on winnings!!
So All in all the HOUSE is the real winner in the end!! and the punters [gamblers] are allways the losers even if they have wins now and then!!

So MR WAL, Try to use your GOD given brains and come up wiv realistic scenarios and NOT some kind of monkey types fantasies!!


Bull

 

[Profitaker]

I suspect Wal posted the scenario to test your basic maths and reasoning, nuff said !

Let me give you a chance to redeem yourself with a real life scenario;

Underlying 5375

ESX Dec05 5075 Put IV 10%, trading at 11
ESX Dec05 5025 Put IV 15%, trading at 28

If you could buy or sell either or both options, how would you play it ? and why ?

 

[bulldozer]

Friends, members and human's.

There are some people that have been given PERFECT brains by the Almighty and a very few of them exchange that for monkey brains! and they would like to have us believe that the brain given by the almighty is NOT as good as that of the monkeys. And they are very easy to detect who they are by just reading the things they say on these boards. :cheesy:

The fact of the matter is we need these people with such brains because they provide the income to the ones that have NOT exchanged their brains for the monkeys one.

At the present time the Footsie index is UP by 3 points but the DOTM PUT options in the Dec's contracts have NOT move DOWN at all not even 1/2 a point!! The premium for ONE contract is the same price as yesterdays close!

1/2 a point is the LOWEST movement in Options and this represents £5.00! on dotm put options that have value above £600.00 per contract even if it lost or gained 1/2 a point [£5] its not something to get too execited about! it would not even pay for a bottle of wine in a restaurant.

Many times the Bank of England raise interest rates by 1/4-1/2 a point and the local banks dont even raise rates on their costumers! why? cause the rise is not serrious or cost effective to warrant a rise by local banks. This is a good example of how Delta works! Even if the banks decided to raise rates to their customers by 1/4 % is that rise going to effect the life of the ordinary man in the street? or the bus driver? or the road sweeper? who all these are on low wages.

Bull
God makes the simple wise and the wise simple in some cases!
I'll probably get banned again cause of this post? :cheesy: Thats life i guess!

 

[wal]

Bull,

regarding your brains post:

I don't suppose you realise that you've been hoisted by your own petard

 

[bulldozer]

I suspect Wal posted the scenario to test your basic maths and reasoning, nuff said !

Let me give you a chance to redeem yourself with a real life scenario;

Underlying 5375

ESX Dec05 5075 Put IV 10%, trading at 11
ESX Dec05 5025 Put IV 15%, trading at 28

If you could buy or sell either or both options, how would you play it ? and why ?

=====================================================================

Prof,
Your insulting my intelegence! the choice is so easy that my 17 yr old son can do it!! :cheesy:

Here is a COUPLE of questions for you! answer your own question you put to ROBERTRAL a few days ago on ARB? Infact you BEGGED for a reply TWICE and he still refuses to reply! He and i know the answer and I told him not to reply! thank God he made the right choice not to reply! I'll give 5 yrs on the ARB question too! or 10 yrs if U like?

2nd question: How would you hedge a 100 contract SHORT on your second quote in your post? [Dec 5025 @ 28 pts]

I'll give you 5 yrs for the right /correct reply! or 10 yrs if U like?

Bull
Monkeys that mess wiv bulls get BOTH horns every time sooner or later! in most cases its sooner rather than later! :cheesy:

 

[bulldozer]

Profittaker, your post is common for the non-professional trader. Why is the rest of my post rubbish? Is it because you can't come back with a decent response?
If the option really worth 10 (lets say its OTM) and there is no price in the market for the option. I place a an offer at 20 and assume it gets lifted, then the implid vol (from the price of 20) will give you a hegding error from your greeks as now your delta and gamma will be too high; hence you will over hedge using that IV. Any comments regarding the above?

IV is just the generally market concenous what what the vol will be over the option maturity, if I think the vol is wrong then I will use my own and hegde from that.

Answer this: How do I perform arbitrage from mispriced options in the market?

===================================================================

Prof,

Re: post No 7 above from Rob.

Plz come back to this thread when you can reply to this post by Robertral.

In the voice of the great Luis Armstrong>> We have all the time in the world.... :cheesy:

Bull

 

[bulldozer]

Sorry you are incorrect!!!! any volatility you insert into your option pricing model is your own volatility, be it an implied vol from the market, your vol estimate for that forward (i.e a weighted vol estimate). Profittake I suggest you read the book by Natenberg - Option Volatility and Pricing, it will probably help you stop losing money from your option trading.
Implied vol is the volatility implied from the options in the market. How does that vol get into the market???? Also if an option is worth 10 and I put a 20 offer in (ther eis nothing on the bid and I'm the only person on the offer) and it gets lifted, then IV for that option would be tottaly incorrect and your Delta (being a function of IV) is incorrect. For you, bad news (using IV to calc deltas), but for me and other intelligent option traders that wouldn't really bother me as my vol model would see that!!
Profittaker I can see you have only traded(played/read option books) from home! try doing a vol trade with a counterparty, where you both have to agree on a delta so you can exhange deltas (I think the delat is 43% and the counterparty thinks it's 44% [i.e we are using differnet vols])
Also what happens if I'm using a differnt options pricing model to you? say Heston, then my Implied vol is going to be differnt to yours and other traders.

=========================================================
Proftaker,
Also this post [No 5]

Can i suggest you obtain help from Pitscum and Wal? :cheesy:

 

[bulldozer]

Prof,
your quote>> "Anyone got any interesting debate / ideas / discussion ?

If not I think I’ll just **** off ! " [from your post 108] :cheesy:

===================================================================

YES, how about posts No 5 and No 7 by Rob?? :cheesy: just for starters!


Bull

 

[Profitaker]

Calculating option delta and implied vol's is way beyond you Mr.B, I certainly wouldn't entertain discussion at that level with you. Sorry.

You'll find both replies here;

http://www.trade2win.com/boards/showthread.php?t=16863&page=1&pp=10

Number 6 & 8.

 

[bulldozer]

Calculating option delta and implied vol's is way beyond you Mr.B, I certainly wouldn't entertain discussion at that level with you. Sorry.

You'll find both replies here;

http://www.trade2win.com/boards/showthread.php?t=16863&page=1&pp=10

Number 6 & 8.

===============================================================

Prof,
Your quote>>" certainly wouldn't entertain discussion at that level with you. Sorry."

Thanks God for that!! :cheesy:

I have not taken a look at link yet. But does it cover the question on ARB too?

Its been a great pleasure talkin wiv U! AND keep on trading sucessfully!

OH, by the way! people like me [writers] we hardly complain about how much we recieve in premiums! we dont mind if its 1-2 pts less It makes very little difference in our tax accounts :cheesy: We like to keep the premium payers happy by givin them the xtra 1-2 pts discount Its called good business sense :cheesy:

Bull