Options pedia

CALENDAR SPREAD

2012-10-12T03:16:00.000-07:00

CALENDAR SPREAD

SELL NEAR MONTH OPTION

BUY FAR MONTH OPTION

As it name suggests it spreads over the calendar month, hence it is known as calendar spread. The logic behind calendar spread is, near month options price will fluctuate more than far month. So, in calendar spread we take benefit out of this.

Calendar spread can be of many types. If it has made using call option it is called Calendar Call Spread, same way for put it is known as Calendar Put Spread. If the Calendar Spread is made of different month’s expiry and same strike price is called Horizontal Calendar Spread. At the same time options with different strike price is known as Vertical Calendar Spread.

Market Scenario: Neutral

Risk: Limited

Reward: Limited

EXAMPLE:

The example of Calendar spread is given below. Here we are using the same strike price so it is Horizontal Calendar Spread.

SPOT	5000
STRIKE	5100

Current Expiry is Oct. So we are Buying the option of Dec i.e. Far Month and Selling the Option of Nov i.e. Near Month.

	NOV - BUY	DEC – SELL
5100	198.13	252.48
Time to Expiry	2 Month	3 Month
Spread	54.35

Here after one month of purchase, the position of options will be like this:

	OCT	NOV
5100	124.95	198.13
Time to Expiry	1 Month	2 Month
Spread	68.18

Here our Spread has been increased from 54.35 to 68.18 considering the same spot.

RATIO SPREAD

2012-10-12T03:15:00.001-07:00

RATIO SPREAD

BUY ONE ITM CALL

SELL TWO OTM CALL

The ratio spread is a neutral strategy. It is a limited profit, unlimited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience little volatility in the near term.

Market Scenario: Neutral

Risk: Unlimited

Reward: Limited

BEP:

Maximum Profit = Strike Price of Short Call - Strike Price of Long Call + Net Premium Received

Upper BEP = Strike Price of Short Calls + (Points of Maximum Profit / Number of Uncovered Calls)

Entry:

SPOT

5000

	STRIKE	PREMIUM
BUY 1 ITM CALL	4900	221
SELL 2 OTM CALL	5100	124

BEP Calculation:

Max. Profit = 5100 – 4900 + 27 = 227 BEP = 5100 + (227/1) = 5327

On Exit if:

SPOT	BUY 1 ITM	SELL 2 OTM	STRATEGY PAY-OFF
4700	-221	248	27
4800	-221	248	27
4900	-221	248	27
5000	-121	248	127
5100	-21	248	227
5200	79	48	127
5300	179	-152	27
5327	206	-206	0
5400	279	-352	-73
5500	379	-552	-173

Ratio Spread - Strategy Pay-Off

Above diagram shows that the maximum profit we can get from this ratio spread is 227. At the same time the maximum loss possible is unlimited.

CALL-PUT PARITY

2012-10-12T03:02:00.002-07:00

CALL-PUT PARITY

It is an option pricing concept. According to call-put parity the price of underlying, call option, put option and future should be in equilibrium. If they are not in equilibrium then call-put parity exits and we can take arbitrage opportunities.

The basic formula for checking call-put parity is as follows:

C - P – F = 0

Where, C = Call price

P = Put price

F = Future price

X= exercise price

Here, in this formula we are taking assumption that there are no carrying costs for options.

ADVANCED OPTION STRATEGIES

2012-10-12T02:59:00.000-07:00

ADVANCED OPTION STRATEGIES

VOLATILITY SPREAD

Ø Volatility spread is a volatility based strategy.

Ø Volatility Spread is a Delta neutral strategy.

Ø In Volatility spread, we buy an option of X strike and sell an option of Y strike of same underlying.

Ø It reduces volatility risk significantly.

Ø In Volatility Spread we buy call with higher volatility and sell call of lower volatility. At the same time we keep delta neutral using future.

TYPE	SPOT	STRIKE	Quantity	VOL	Days To Expiry	Delta	Pos. Delta	Price
Call	5600	5500	1000	16 %	29	0.6635	663.5	157.71
Call	5600	5700	(1000)	14 %	29	(0.334)	(334.0)	(47.74)
						0.3295	329.5	109.97
Future	5600		(327)			(1)	(327)
						0.0004	0.4

In above example, the volatility of the long call is 16 % and volatility of short call is 14 %. Moreover for Volatility spread we keep delta neutral using future. Here the spread is 109.97. Now we will see the impact of volatility change.

If volatility of long call changes to 17%.

TYPE	SPOT	STRIKE	Quantity	VOL	Days To Expiry	Delta	Pos. Delta	Price
Call	5600	5500	1000	17 %	29	0.6831	683.1	163.49
Call	5600	5700	(1000)	14 %	29	(0.334)	(334.0)	(47.74)
						0.3274	327.4	115.75

Here, if volatility of long call is increase by 1 % the spread has increased to 115.75 from 109.97.

TYPE	SPOT	STRIKE	Quantity	VOL	Days To Expiry	Delta	Pos. Delta	Price
Call	5600	5500	1000	16 %	29	0.6635	663.5	157.71
Call	5600	5700	(1000)	13 %	29	(0.3557)	(355.7)	(42.04)
						0.3274	327.4	115.67

Here, if volatility of short call is decrease by 1 % the spread has increased to 115.67 from 109.97.

EFFECT OF DIFFERENT PARAMETERS ON RHO:

2012-10-12T02:54:00.000-07:00

EFFECT OF DIFFERENT PARAMETERS ON RHO:

RHO with respect to change in SPOT PRICE:

SPOT	5600	5700	5800	5900	6000	6100	6200	6300	6400
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Put Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Call Delta	0.2196	0.2863	0.3599	0.4378	0.5169	0.594	0.6664	0.7321	0.7897
Put Delta	-0.7804	-0.7137	-0.6401	-0.5622	-0.4831	-0.406	-0.3336	-0.2679	-0.2103
Gamma	0.0006	0.0007	0.0008	0.0008	0.0008	0.0008	0.0007	0.0006	0.0005
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030
Theta	-2.4148	-2.8274	-3.1634	-3.3899	-3.4867	-3.4491	-3.2877	-3.025	-2.6912
CALL RHO	0.9315	1.2309	1.5675	1.9296	2.3032	2.6738	3.0278	3.3540	3.6446
PUT RHO	-3.8356	-3.5362	-3.1996	-2.8376	-2.4639	-2.0934	-1.7394	-1.4131	-1.1225

Observations:

As Spot Price increases

- Call premium increases and Put premium decreases.

- Call delta increases and Put delta decreases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

- Theta is at peak at ATM and decreases as NIFTY moves away.

- Call Rho increases and Put Rho decreases.

RHO with respect to change in STRIKE PRICE:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	5600	5700	5800	5900	6000	6100	6200	6300	6400
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Put Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Call Delta	0.8046	0.7418	0.6712	0.5952	0.5169	0.4391	0.3649	0.2964	0.2355
Put Delta	-0.1954	-0.2582	-0.3288	-0.4048	-0.4831	-0.5609	-0.6351	-0.7036	-0.7645
Gamma	0.0005	0.0006	0.0007	0.0008	0.0008	0.0008	0.0007	0.0007	0.0006
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030
Theta	-2.4148	-2.8274	-3.1634	-3.3899	-3.4867	-3.4491	-3.2877	-3.025	-2.6912
CALL RHO	3.4723	3.2323	2.9496	2.6353	2.3032	1.9679	1.6432	1.3408	1.0692
PUT RHO	-0.9770	-1.2965	-1.6587	-2.0524	-2.4639	-2.8787	-3.2828	-3.6646	-4.0157

Observations:

As Strike price Increases

- Call premium Decreases and Put Premium Increases.

- Call Delta Decreases and Put Delta Increases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

- Theta is at peak at ATM and decreases as NIFTY moves away.

- Call Rho decreases and Put Rho increases.

RHO with respect to change in DAYS TO EXPIRY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	20	15	10	5	4	3	2	1
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Put Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Call Delta	0.5169	0.5140	0.5121	0.5099	0.5070	0.5063	0.5054	0.5044	0.5031
Put Delta	-0.4831	-0.4860	-0.4879	-0.4901	-0.4930	-0.4937	-0.4946	-0.4956	-0.4969
Gamma	0.0008	0.0009	0.0011	0.0013	0.0019	0.0021	0.0024	0.0030	0.0042
Vega	6.7410	5.5997	4.8502	3.9608	2.8011	2.5055	2.1699	1.7718	1.2529
Theta	-3.4867	-4.1997	-4.8502	-5.9412	-8.4034	-9.3956	-10.8494	-13.2881	-18.7929
CALL RHO	2.3032	1.5978	1.1237	0.7258	0.4052	0.3246	0.2439	0.1629	0.0817
PUT RHO	-2.4639	-1.6899	-1.1777	-0.7536	-0.4167	-0.3329	-0.2493	-0.1658	-0.0827

Observations:

As days to expiry decreases

- Both Call and Put Premium decrease.

- Call Delta decrease and Put Delta increases (Both move towards 0.5).

- Gamma increases.

- Vega decreases.

- Theta increases.

- Call and Put Rho decrease.

RHO with respect to change in VOLATILITY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	100 %	80 %	60 %	50 %	40 %	30 %	20 %	10 %	1 %
Call Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Put Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Call Delta	0.5560	0.5449	0.5337	0.5281	0.5225	0.5169	0.5112	0.5056	0.5006
Put Delta	-0.4440	-0.4551	-0.4663	-0.4719	-0.4775	-0.4831	-0.4888	-0.4944	-0.4994
Gamma	0.0002	0.0003	0.0004	0.0005	0.0006	0.0008	0.0012	0.0024	0.0236
Vega	6.6804	6.7043	6.7230	6.7303	6.7363	6.7410	6.7444	6.7464	6.7470
Theta	-11.5179	-9.2473	-6.9548	-5.802	-4.6457	-3.4867	-2.3256	-1.1632	-0.1163
CALL RHO	2.1164	2.1696	2.2229	2.2497	2.2764	2.3032	2.3300	2.3568	2.3809
PUT RHO	-2.6507	-2.5975	-2.5442	-2.5175	-2.4907	-2.4639	-2.4372	-2.4104	-2.3862

Observations:

As Volatility decreases

- Both Call and Put Premium decreases.

- Call Delta decreases and Put Delta Increases.

- Gamma increases.

- Vega increases.

- Theta Decreases.

- Call Rho increases and Put Rho decreases.

RHO with respect to change in RATE OF INTEREST:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Rate of Interest	50 %	40 %	30 %	20 %	10 %	5 %	3%	2 %	1 %
Call Premium	336.73	306.92	278.51	251.58	226.17	214.06	209.33	206.99	204.66
Put Premium	103.05	119.23	137.19	156.99	178.69	190.27	195.04	197.46	199.89
Call Delta	0.6957	0.6621	0.6271	0.591	0.5542	0.5356	0.5281	0.5243	0.5206
Put Delta	-0.3043	-0.3379	-0.3729	-0.409	-0.4458	-0.4644	-0.4719	-0.4757	-0.4794
Gamma	0.0007	0.0007	0.0007	0.0008	0.0008	0.0008	0.0008	0.0008	0.0008
Vega	5.9180	6.1823	6.4017	6.5706	6.6847	6.7202	6.7303	6.7345	6.7380
Call Theta	-8.3178	-7.2147	-6.1478	-5.2039	-4.3066	-3.8868	-3.7244	-3.6444	-3.5652
Put Theta	-0.418	-0.8451	-1.3595	-1.968	-2.6758	-3.0682	-3.2345	-3.3162	-3.4099
CALL RHO	3.0489	2.9123	2.7681	2.6176	2.4622	2.3830	2.3511	2.3352	2.3192
PUT RHO	-1.5325	-1.7057	-1.8867	-2.0743	-2.2672	-2.3652	-2.4046	-2.4244	-2.441

Observations:

As Rate of Interest decreases

- Call Premium decreases and Put Premium increases.

- Call Delta increases and Put Delta decreases.

- Gamma increases.

- Vega increases.

- Call Theta increases and Put theta decreases

- Call Rho decreases and Put Rho increases.

RHO RELATIONSHIP:

Variables	CALL RHO	PUT RHO
Spot	Positive	Negative
Strike	Negative	Positive
Volatility	Negative	Positive
Days to Expiry	Positive	Positive
Rate of Interest	Positive	Negative

OPTION GREEKS : RHO (ρ)

2012-10-05T05:40:00.004-07:00

RHO (ρ)

Rho measures the change in options price with unit change in rate of interest. If Rho of put options is -3.87 that signify that for each unit increase in interest rate, put option price will decrease by 3.87.

Rho important Points:

- Rho of Call Option is always Positive and Rho of Put Option is Negative.

- Rho of Call and Put Option is different.

- Rho is highest at ATM and decreases as Nifty moves away.

- Rho of Future is 0.

Buy Call	Rho Long
Sell Call	Rho Short
Buy Put	Rho Short
Sell Put	Rho Long

EFFECT OF DIFFERENT PARAMETERS ON THETA:

2012-10-05T05:38:00.000-07:00

EFFECT OF DIFFERENT PARAMETERS ON THETA:

THETA with respect to change in SPOT PRICE:

SPOT	5600	5700	5800	5900	6000	6100	6200	6300	6400
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Put Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Call Delta	0.2196	0.2863	0.3599	0.4378	0.5169	0.594	0.6664	0.7321	0.7897
Put Delta	-0.7804	-0.7137	-0.6401	-0.5622	-0.4831	-0.406	-0.3336	-0.2679	-0.2103
Gamma	0.0006	0.0007	0.0008	0.0008	0.0008	0.0008	0.0007	0.0006	0.0005
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030
Theta	-2.4148	-2.8274	-3.1634	-3.3899	-3.4867	-3.4491	-3.2877	-3.025	-2.6912

Observations:

As Spot Price increasess

- Call premium increases and Put premium decreases.

- Call delta increases and Put delta decreases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

- Theta is at peak at ATM and decreases as NIFTY moves away

THETA with respect to change in STRIKE PRICE:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	5600	5700	5800	5900	6000	6100	6200	6300	6400
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Put Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Call Delta	0.8046	0.7418	0.6712	0.5952	0.5169	0.4391	0.3649	0.2964	0.2355
Put Delta	-0.1954	-0.2582	-0.3288	-0.4048	-0.4831	-0.5609	-0.6351	-0.7036	-0.7645
Gamma	0.0005	0.0006	0.0007	0.0008	0.0008	0.0008	0.0007	0.0007	0.0006
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030
Theta	-2.4148	-2.8274	-3.1634	-3.3899	-3.4867	-3.4491	-3.2877	-3.025	-2.6912

Observations:

As Strike price Increases

- Call premium Decreases and Put Premium Increases.

- Call Delta Decreases and Put Delta Increases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

- Theta is at peak at ATM and decreases as NIFTY moves away.

THETA with respect to change in DAYS TO EXPIRY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	20	15	10	5	4	3	2	1
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Put Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Call Delta	0.5169	0.5140	0.5121	0.5099	0.5070	0.5063	0.5054	0.5044	0.5031
Put Delta	-0.4831	-0.4860	-0.4879	-0.4901	-0.4930	-0.4937	-0.4946	-0.4956	-0.4969
Gamma	0.0008	0.0009	0.0011	0.0013	0.0019	0.0021	0.0024	0.0030	0.0042
Vega	6.7410	5.5997	4.8502	3.9608	2.8011	2.5055	2.1699	1.7718	1.2529
Theta	-3.4867	-4.1997	-4.8502	-5.9412	-8.4034	-9.3956	-10.8494	-13.2881	-18.7929

Observations:

As days to expiry decreases

- Both Call and Put Premium decrease.

- Call Delta decrease and Put Delta increases (Both move towards 0.5).

- Gamma increases.

- Vega decreases.

- Theta increases.

THETA with respect to change in VOLATILITY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	100 %	80 %	60 %	50 %	40 %	30 %	20 %	10 %	1 %
Call Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Put Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Call Delta	0.5560	0.5449	0.5337	0.5281	0.5225	0.5169	0.5112	0.5056	0.5006
Put Delta	-0.4440	-0.4551	-0.4663	-0.4719	-0.4775	-0.4831	-0.4888	-0.4944	-0.4994
Gamma	0.0002	0.0003	0.0004	0.0005	0.0006	0.0008	0.0012	0.0024	0.0236
Vega	6.6804	6.7043	6.7230	6.7303	6.7363	6.7410	6.7444	6.7464	6.7470
Theta	-11.5179	-9.2473	-6.9548	-5.802	-4.6457	-3.4867	-2.3256	-1.1632	-0.1163

Observations:

As Volatility decreases

- Both Call and Put Premium decreases.

- Call Delta decreases and Put Delta Increases.

- Gamma increases.

- Vega increases.

- Theta Decreases.

THETA with respect to change in RATE OF INTEREST:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Rate of Interest	50 %	40 %	30 %	20 %	10 %	5 %	3%	2 %	1 %
Call Premium	336.73	306.92	278.51	251.58	226.17	214.06	209.33	206.99	204.66
Put Premium	103.05	119.23	137.19	156.99	178.69	190.27	195.04	197.46	199.89
Call Delta	0.6957	0.6621	0.6271	0.591	0.5542	0.5356	0.5281	0.5243	0.5206
Put Delta	-0.3043	-0.3379	-0.3729	-0.409	-0.4458	-0.4644	-0.4719	-0.4757	-0.4794
Gamma	0.0007	0.0007	0.0007	0.0008	0.0008	0.0008	0.0008	0.0008	0.0008
Vega	5.9180	6.1823	6.4017	6.5706	6.6847	6.7202	6.7303	6.7345	6.7380
Call Theta	-8.3178	-7.2147	-6.1478	-5.2039	-4.3066	-3.8868	-3.7244	-3.6444	-3.5652
Put Theta	-0.418	-0.8451	-1.3595	-1.968	-2.6758	-3.0682	-3.2345	-3.3162	-3.4099

Observations:

As Rate of Interest decreases

- Call Premium decreases and Put Premium increases.

- Call Delta increases and Put Delta decreases.

- Gamma increases.

- Vega increases.

- Call Theta decreases and Put Theta increases.

THETA RELATIONSHIP:

Variables	THETA
Spot	Highest at ATM and reduces as NIFTY moves away
Strike	Highest at ATM and reduces as NIFTY moves away
Volatility	Positive
Days to Expiry	Negative
Rate of Interest	Positive for Call Negative for Put

OPTION GREEKS : THETA (θ)

2012-10-05T05:03:00.005-07:00

THETA (θ)

Theta measures the change in options price per day change in time to expiry. If theta is -3.87 that signify that for each day passes towards expiry the options price will decrease by 3.87.

Theta important Points:

- Theta of Option is always negative.

- Theta of Call and Put Option is same. (If rate of interest is not considered into calculation)

- Theta is highest at ATM and decreases as Nifty moves away.

- Theta of Future is 0.

When you buy Call Option, Negative Theta multiplies by Positive Quantity, hence gives Negative Portfolio Theta. This signifies that buying Call Option means Short Theta Position.

When you sell Call Option, Negative Theta multiplies by Negative Quantity, hence gives Positive Portfolio Theta. This signifies that Selling Call Option means Long Theta Position.

When you buy Put Option, Negative Theta multiplies by Positive Quantity, hence gives Negative Portfolio Theta. This signifies that buying Put Option means Short Theta Position.

When you sell Put Option, Negative Theta multiplies by Negative Quantity, hence gives Positive Portfolio Theta. This signifies that Selling Put Option means Long Theta Position.

Value of Theta increases as the Option moves from Out of the money to At the money and decreases as the Option moves from At the money to In the money Option.

Buy Call	Theta Short
Sell Call	Theta Long
Buy Put	Theta Short
Sell Put	Theta Long

EFFECT OF DIFFERENT PARAMETERS ON VEGA:

2012-10-04T03:40:00.002-07:00

EFFECT OF DIFFERENT PARAMETERS ON VEGA:

VEGA with respect to change in SPOT PRICE:

SPOT	5600	5700	5800	5900	6000	6100	6200	6300	6400
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Put Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Call Delta	0.2196	0.2863	0.3599	0.4378	0.5169	0.594	0.6664	0.7321	0.7897
Put Delta	-0.7804	-0.7137	-0.6401	-0.5622	-0.4831	-0.406	-0.3336	-0.2679	-0.2103
Gamma	0.0006	0.0007	0.0008	0.0008	0.0008	0.0008	0.0007	0.0006	0.0005
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030

Observations:

As Spot Price increases

- Call premium increases and Put premium decreases.

- Call delta increases and Put delta decreases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

VEGA with respect to change in STRIKE PRICE:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	5600	5700	5800	5900	6000	6100	6200	6300	6400
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Put Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Call Delta	0.8046	0.7418	0.6712	0.5952	0.5169	0.4391	0.3649	0.2964	0.2355
Put Delta	-0.1954	-0.2582	-0.3288	-0.4048	-0.4831	-0.5609	-0.6351	-0.7036	-0.7645
Gamma	0.0005	0.0006	0.0007	0.0008	0.0008	0.0008	0.0007	0.0007	0.0006
Vega	4.6687	5.4663	6.1159	6.5539	6.7410	6.6683	6.3562	5.8483	5.2030

Observations:

As Strike price Increases

- Call premium Decreases and Put Premium Increases.

- Call Delta Decreases and Put Delta Increases.

- Gamma is at peak at ATM and decreases as NIFTY moves away.

- Vega is at peak at ATM and decreases as NIFTY moves away.

VEGA with respect to change in DAYS TO EXPIRY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	20	15	10	5	4	3	2	1
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Put Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Call Delta	0.5169	0.5140	0.5121	0.5099	0.5070	0.5063	0.5054	0.5044	0.5031
Put Delta	-0.4831	-0.4860	-0.4879	-0.4901	-0.4930	-0.4937	-0.4946	-0.4956	-0.4969
Gamma	0.0008	0.0009	0.0011	0.0013	0.0019	0.0021	0.0024	0.0030	0.0042
Vega	6.7410	5.5997	4.8502	3.9608	2.8011	2.5055	2.1699	1.7718	1.2529

Observations:

As days to expiry decreases

- Both Call and Put Premium decrease.

- Call Delta decrease and Put Delta increases (Both move towards 0.5).

- Gamma increases.

- Vega decreases.

VEGA with respect to change in VOLATILITY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	100 %	80 %	60 %	50 %	40 %	30 %	20 %	10 %	1 %
Call Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Put Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Call Delta	0.5560	0.5449	0.5337	0.5281	0.5225	0.5169	0.5112	0.5056	0.5006
Put Delta	-0.4440	-0.4551	-0.4663	-0.4719	-0.4775	-0.4831	-0.4888	-0.4944	-0.4994
Gamma	0.0002	0.0003	0.0004	0.0005	0.0006	0.0008	0.0012	0.0024	0.0236
Vega	6.6804	6.7043	6.7230	6.7303	6.7363	6.7410	6.7444	6.7464	6.7470

Observations:

As Volatility decreases

- Both Call and Put Premium decreases.

- Call Delta decreases and Put Delta Increases.

- Gamma increases.

- Vega increases.

VEGA with respect to change in RATE OF INTEREST:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Rate of Interest	50 %	40 %	30 %	20 %	10 %	5 %	3%	2 %	1 %
Call Premium	336.73	306.92	278.51	251.58	226.17	214.06	209.33	206.99	204.66
Put Premium	103.05	119.23	137.19	156.99	178.69	190.27	195.04	197.46	199.89
Call Delta	0.6957	0.6621	0.6271	0.591	0.5542	0.5356	0.5281	0.5243	0.5206
Put Delta	-0.3043	-0.3379	-0.3729	-0.409	-0.4458	-0.4644	-0.4719	-0.4757	-0.4794
Gamma	0.0007	0.0007	0.0007	0.0008	0.0008	0.0008	0.0008	0.0008	0.0008
Vega	5.9180	6.1823	6.4017	6.5706	6.6847	6.7202	6.7303	6.7345	6.7380

Observations:

As Rate of Interest decreases

- Call Premium decreases and Put Premium increases.

- Call Delta increases and Put Delta decreases.

- Gamma increases.

- Vega increases.

VEGA RELATIONSHIP:

Variables	VEGA
Spot	Highest at ATM and reduces as NIFTY moves away
Strike	Highest at ATM and reduces as NIFTY moves away
Volatility	Negative
Days to Expiry	Positive
Rate of Interest	Negative

OPTION GREEKS : VEGA (ν)

2012-10-04T03:35:00.003-07:00

VEGA (ν)

Vega measures the change in options price per unit change in Volatility. A Vega value of 6.87 shows that for every unit increase in volatility, option price will increase by 6.87. Thus, Vega shows effect of volatility on option price.

Vega important Points:

- Vega of Option is always positive.

- Vega of Call and Put Option is same.

- Vega is highest at ATM and decreases as Nifty moves away.

- Vega of Future is 0.

When you buy Call Option, Positive Vega multiplies by Positive Quantity, hence gives Positive Portfolio Vega which signifies that buying Call Option means Long Vega Position.

When you sell Call Option, Positive Vega multiplies by Negative Quantity, hence gives Negative Portfolio Vega which signifies that selling Call Option means Short Vega Position.

When you buy Put Option, Positive Vega multiplies by Positive Quantity, hence gives Positive Portfolio Vega which signifies that buying Put Option means Long Vega Position.

When you sell Put Option, Positive Vega multiplies by Negative Quantity, hence gives Negative Portfolio Vega which signifies that selling Put Option means Short Vega Position.

Buy Call	Vega Long
Sell Call	Vega Short
Buy Put	Vega Long
Sell Put	Vega Short

EFFECT OF DIFFERENT PARAMETERS ON GAMMA:

2012-10-04T03:30:00.001-07:00

EFFECT OF DIFFERENT PARAMETERS ON GAMMA:

Gamma with respect to change in SPOT PRICE:

SPOT	5600	5700	5800	5900	6000	6100	6200	6300	6400
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Put Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Call Delta	0.2196	0.2863	0.3599	0.4378	0.5169	0.594	0.6664	0.7321	0.7897
Put Delta	-0.7804	-0.7137	-0.6401	-0.5622	-0.4831	-0.406	-0.3336	-0.2679	-0.2103
Gamma	0.0006	0.0007	0.0008	0.0008	0.0008	0.0008	0.0007	0.0006	0.0005

Observations:

As Spot Price increases

- Call premium increases and Put premium decreases.

- Call delta increases and Put delta decreases.

- Gamma is highest at ATM and decreases as NIFTY moves away.

GAMMA with respect to change in STRIKE PRICE:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	5600	5700	5800	5900	6000	6100	6200	6300	6400
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	457.25	382.48	314.74	254.61	202.35	157.92	120.98	90.97	67.14
Put Premium	57.25	82.48	114.74	154.61	202.35	257.92	320.98	390.97	467.14
Call Delta	0.8046	0.7418	0.6712	0.5952	0.5169	0.4391	0.3649	0.2964	0.2355
Put Delta	-0.1954	-0.2582	-0.3288	-0.4048	-0.4831	-0.5609	-0.6351	-0.7036	-0.7645
Gamma	0.0005	0.0006	0.0007	0.0008	0.0008	0.0008	0.0007	0.0007	0.0006

Observations:

As Strike price Increases

- Call premium Decreases and Put Premium Increases.

- Call Delta Decreases and Put Delta Increases.

- Gamma is highest at ATM and decreases as NIFTY moves away.

GAMMA with respect to change in DAYS TO EXPIRY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	20	15	10	5	4	3	2	1
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Call Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Put Premium	202.35	168.05	145.55	118.84	84.04	75.17	65.10	53.15	37.58
Call Delta	0.5169	0.5140	0.5121	0.5099	0.5070	0.5063	0.5054	0.5044	0.5031
Put Delta	-0.4831	-0.4860	-0.4879	-0.4901	-0.4930	-0.4937	-0.4946	-0.4956	-0.4969
Gamma	0.0008	0.0009	0.0011	0.0013	0.0019	0.0021	0.0024	0.0030	0.0042

Observations:

As days to expiry decreases

- Both Call and Put Premium decrease.

- Call Delta decreases and Put Delta increases (Both move towards 0.5).

- Gamma increases.

GAMMA with respect to change in VOLATILITY:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	100 %	80 %	60 %	50 %	40 %	30 %	20 %	10 %	1 %
Call Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Put Premium	672.48	538.62	404.34	337.07	269.74	202.35	134.92	67.47	6.75
Call Delta	0.5560	0.5449	0.5337	0.5281	0.5225	0.5169	0.5112	0.5056	0.5006
Put Delta	-0.4440	-0.4551	-0.4663	-0.4719	-0.4775	-0.4831	-0.4888	-0.4944	-0.4994
Gamma	0.0002	0.0003	0.0004	0.0005	0.0006	0.0008	0.0012	0.0024	0.0236

Observations:

As Volatility decreases

- Both Call and Put Premium decreases.

- Call Delta decreases and Put Delta Increases.

- Gamma increases.

GAMMA with respect to change in RATE OF INTEREST:

SPOT	6000	6000	6000	6000	6000	6000	6000	6000	6000
STRIKE	6000	6000	6000	6000	6000	6000	6000	6000	6000
Days to Expiry	29	29	29	29	29	29	29	29	29
Volatility	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %	30 %
Rate of Interest	50 %	40 %	30 %	20 %	10 %	5 %	3%	2 %	1 %
Call Premium	336.73	306.92	278.51	251.58	226.17	214.06	209.33	206.99	204.66
Put Premium	103.05	119.23	137.19	156.99	178.69	190.27	195.04	197.46	199.89
Call Delta	0.6957	0.6621	0.6271	0.591	0.5542	0.5356	0.5281	0.5243	0.5206
Put Delta	-0.3043	-0.3379	-0.3729	-0.409	-0.4458	-0.4644	-0.4719	-0.4757	-0.4794
Gamma	0.0007	0.0007	0.0007	0.0008	0.0008	0.0008	0.0008	0.0008	0.0008

Observations:

As Rate of Interest decreases

- Call Premium decreases and Put Premium increases.

- Call Delta decreases and Put Delta increases.

- Gamma increases.

GAMMA RELATIONSHIP:

Variables	Gamma
Spot	Highest at ATM and reduces as NIFTY moves away
Strike	Highest at ATM and reduces as NIFTY moves away
Volatility	Negative
Time	Positive
Rate of Interest	Negative