The change in Delta from 0.40 to 0.55 is 0.15-this is the option’s Gamma.īecause Delta can’t exceed 1.00, Gamma decreases as an option gets further ITM and Delta approaches 1.00. So, let’s assume that as a result the Delta is now 0.55. Why? This $1 move would mean the call option is now even deeper ITM, and so its Delta should move even closer to 1.00. If the underlying stock moves $1 and the option moves $.40 along with it, the option’s Delta is no longer 0.40. In the example above, we imagined an option with a Delta of. In practice, Gamma is the rate of change in an option’s Delta per $1 change in the price of the underlying stock. If you remember high school physics class, you can think of Delta as speed and Gamma as acceleration. Where Delta is a snapshot in time, Gamma measures the rate of change in an option’s Delta over time.
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