Discuss (analyze) the delta and theta for the trade and why this makes sense rel

Question

Discuss (analyze) the delta and theta for the trade and why this makes sense relative to your future

Monitor Trade Analyze Scan MarketWatch Charts Tools Education Help Hot Key Setup Add Simulated Trades Risk Profile Probability Analysis Economic Data thinkBack Fundamentals Commission: ExcludeLines: 1@ Expiration Step: NAMetric: P/L Open Prob mode: ITM Prob range: 68.27% Date: 01/20/2018 MSFT Drag chart to pan Drag prices to change scale Click chart for data 300 9.31% 81.43% N/A + 200 + 100 100 300 71 72 73 74 75 76 78 79 85 86 87 8B 93 95 Price slices P/L Open ($214.99 ($7.09 $267.14 P/L Day ($214.99 ($7.09) $267,14 BP Effect $500.00 $500.00 ($500.00 Stk Price 2.02 2.36 4.21 Vega 2.19 1.24 3.45 4.37 47.65 9,08 91.41% +10% .47 1036 1.00 Positions and Simulated Trades ALL Show All Date: 11/16/2017 «no selected. Single Symbol Side Model: Bjerksund-Stensland Interest: 0.75% · Spread SINGLE Qty Symbol Strike Type Yield 2.02% BP Effect MSFT 15 DEC 17 3.55T 17.68% 77.81

Explanation / Answer

By looking at the graph , we can say this is a bearish position ( as the graphs are negetively slpoed). The greek alphabets let you know that how sensitive the position is with respect to stock price movement, and time.

Theta has its importance in the derivative movement as it measures the rate of decline of the value of an option against time. It is also called 'Time decay' on the value of an option, means, If everything remains constant then as the maturity time come closer, the value of option declines.

For example, suppose there is a call option of Rs 10 and theta is -0.5. It means The price of the option will reduce 0.5 daily. So in days , the option price will be Rs 9.

Theta is almost 0 for longer term because in long term there is no daily price movment. But for shorter term theta will be higher.

Delta also has immense important in the derivative market as it measures the change in the value of option with respect to the change of its underlying asset or stock. A Call delta value varries from 0 to 1. On the other hand, a put delta value varries from 0 to -1.

For example, A delta value 0.5 means If the Value of the underlying asset changes by Rs1000, then The option value will change by Rs 500.

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