URGENT!!! comment on the Delta, Gamma and Vega values for call options on follow
ID: 2793954 • Letter: U
Question
URGENT!!! comment on the Delta, Gamma and Vega values for call options on following table (Adidas Stock). Just breif explain what each can mean for investor to hedge their positions,
Strike price
178
180
182
184
186
Underlying asset price
182.02
182.02
182.02
182.02
182.02
Delta
0.669
0.5928
0.5098
0.4219
0.3355
Gamma
0.067
0.0735
0.0777
0.07899
0.0751
Vega
16.3
17.45
17.93
17.59
16.39
Strike price
178
180
182
184
186
Underlying asset price
182.02
182.02
182.02
182.02
182.02
Delta
0.669
0.5928
0.5098
0.4219
0.3355
Gamma
0.067
0.0735
0.0777
0.07899
0.0751
Vega
16.3
17.45
17.93
17.59
16.39
Explanation / Answer
Delta refers to the impact on option price with respect to the change in the value of underlying stock. Delta value ranges from 0 to 1. In the above exampe, at strike price of 178 the call option is deep in the money and at strike price of 186 call option is deep out of the money. Delta value of 0.669 means the with every $1 increase in the underlying asset price, call option price goes up by 0.669. this concept is same for all other delta values. However. if the call option is deep in the money the delta values are closer to 1 and if deep out of the money delta value will be nearer to 0. From the above table, the delta values moved from 0.669 to 0.3355 as it moves from in the money to out of the money.
Gamma refers to the impact of change in delta to a $1 change in underlying asset price.Gamma values are generally represented in percentages. In the above table, if underlying asset price move up by $1 the delta value of 0.669 will move up by 6.7% and so on for other values. Gamma values are higher when the call option hovers around At the Money. In this case gamma value id 7.77% and 7.8% when the strike price is 182 & 184.
Vega refers to impact of change in option price in relation to change in volatility of the undelying stock.. In the above table, if the volatily of the stock price increases then the vega is added to the option price and vice versa. Vega is higher when option is At the Money and time to expiry is nearer. Vega is at 17.93% when the strike is 182 and very much At the money. For In the Money & Out of the Money , the Vega is at lower levels depicting the low volatility levels
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