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Delta does decrease with time when the option is out of the money and it
increases when it is in the money. Attached is a .gif of the August 725
call with a family of delta lines for each Friday up until the August
expiration.
BobR
----- Original Message -----
From: cb <cpbow@xxxxxxxxxxxxx>
To: Realtraders <realtraders@xxxxxxxxxxxx>
Sent: Saturday, July 10, 1999 12:10 PM
Subject: OPT: Option price and delta vs. time
> I am a relatively new trader (3 yrs.) who because of small acct. size
> usually buys options. In an attempt to educate myself on just what I'm
> up against, I studied the time behavior of several options different
> amounts out of the money. To me this was quite revealing. For example,
> I knew that the opt. price would go down with time but I did not know
> that delta went down with time for options that were out of the money.
>
> It also shows that generic rules like "always buy with 40 days left" may
> really vary in their applicability depending on what option you are
> talking about.
>
> This table attempts to study whether out of the money options are a good
> idea and when to liquidate options.
>
> I think the table will be clear but for an example: a 100 call with 40
> days to exp. will cost 3.28 and have a delta of 0.51 (51%).
>
> Table constants futures = 100.00, volatility = 25%
> entries are: option price*100, delta in %.
>
>
> strke|days:....80.... .40........30........20........10.......5
>
> 95...........740,68...628,74....595,77...558,82....520,90...504,96
>
> 100..........462,52...328,51....285,51...233,51....165,51...116,50 x
>
> 105..........266,36...145,29....108,26....68,21.....25,13.....5,5
>
> 107.5........197,29....90,20.....61,16....32,11......7,4......1,1
>
> 110..........142,22....53,13.....32,10....13,5.......2,1......0,0
>
> at 80 days, gamma is 3.0 for the 110, 3.3 for the 100, 2.8 for the 95
> at 40 days, gamma is 2.8 for the 110, 4.8 for the 100, 3.7
> at 20 days, gamma is 2.0 for the 110, 6.8 for the 100, 4.3
> at 10 days, gamma is 0.8 for the 110, 9.6 for the 100, 4.2 for the 95
>
> Gamma is the amount delta changes when the futures goes up/dn by 1.
> For a buyer, the higher the number the better bec. it means you are on
> the concave part of the opt vs. futures graph (which means you win more
> and lose less as futures moves with/against).
>
> at 80 days, vega*100 is 16 for the 110, 18.5 for the 100, 16 for the 95
> at 40 days, vega*100 is 7 for the 110, 13 for the 100, 11
> at 20 days, vega*100 is 2.7 for the 110, 9.3 for the 100, 6.3
> at 10 days, vega*100 is 0.5 for the 110, 7 for the 100, 3.1
>
> vega is the amount the option price goes up/dn if vol. goes up/dn by 1.
> Since implied vol. is unpredictable the use of this is uncertain, unless
> you have a view of where IV is going to go.
>
> Conrad Bowers
>
Attachment Converted: "c:\eudora\attach\Delta725.gif"
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