Term
| What happens to Call/Put price when Share Price rises? |
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Definition
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Term
| What happens to Call/Put price when Volatility rises? |
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Definition
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Term
| What happens to Call/Put price when Time to Expiry falls? |
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Definition
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Term
| What happens to Call/Put price when Interest Rates rise? |
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Definition
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Term
| What happens to Call/Put price when Dividends rise? |
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Definition
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Term
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Definition
| The rate of change of the price of the derivative with the price of the underlying asset. |
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Term
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Definition
| The rate of change of delta with respect to the underlying price. |
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Term
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Definition
| The rate of change of the price of a derivative with volatility. |
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Term
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Definition
| The rate of change of the price of a derivative with the passage of time. |
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Term
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Definition
| The rate of change of the price of a derivative with the interest rate. |
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Term
| Long Call relationship with Delta, Gamma, and Theta. |
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Definition
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Term
| Long Put relationship with Delta, Gamma, and Theta. |
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Definition
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Term
| Short Call relationship with Delta, Gamma, and Theta. |
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Definition
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Term
| Short Put relationship with Delta, Gamma, and Theta. |
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Definition
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Term
| Problem with Discrete versus Continuous time hedging. |
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Definition
| When a continuous time pricing model is implemented in discrete time, errors will occur. |
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Term
| Transaction costs ignored by Black Scholes: |
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Definition
- Bid/Offer Spread
- Commissions as a % of transaction
- Impact Costs (feedback effects) |
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Term
| Name six factors that influence the price of a stock option. |
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Definition
- Current Security price
- Exercise price
- Time to maturity
- Volatility of the underlying asset price
- Risk free interest rate
- Dividends expected during the option's life |
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Term
| What happens to Call/Put price when Strike Price rises? |
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Definition
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Term
| What happens to Call/Put price when Volatility rises? |
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Definition
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Term
| What happens to Call/Put price when Risk Free Rate rises? |
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Definition
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Term
| What happens to Call/Put price when Dividends rise? |
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Definition
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Term
| Determine effect of Delta, Gamma, Theta, and Vega for a Long Call. |
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Definition
Delta +
Gamma +
Theta -
Vega + |
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Term
| Determine effect of Delta, Gamma, Theta, and Vega for a Short Put. |
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Definition
Delta +
Gamma -
Theta +
Vega - |
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Term
| Determine effect of Delta, Gamma, Theta, and Vega for a Long Put |
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Definition
Delta -
Gamma +
Theta -
Vega + |
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Term
| Determine effect of Delta, Gamma, Theta, and Vega for a Short Call |
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Definition
Delta -
Gamma -
Theta +
Vega - |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Long Straddle. |
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Definition
Long call and put at same price/date.
Delta 0
Gamma +
Theta -
Vega + |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Long Strangle |
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Definition
Long call and put same price, different date.
Delta 0
Gamma +
Theta -
Vega + |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Strip |
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Definition
Long 1 call, long 2 puts
Delta -
Gamma -
Theta -
Vega + |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Strap |
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Definition
Long 2 calls, long 1 put
Delta +
Gamma +
Theta -
Vega + |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Short Straddle |
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Definition
Short call/put at same price
Delta 0
Gamma -
Theta +
Vega - |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Short Strangle |
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Definition
Short 1 call, 1 put out of the money.
Delta 0
Gamma -
Theta +
Vega - |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Long Butterfly |
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Definition
Long 1 ITM, 1 OTM call, short 2 ATM call
Delta 0
Gamma -
Theta +
Vega - |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Long Condor |
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Definition
Buy 1 far OTM put, sell 1 near OTM put. Sell 1 near OTM call, buy 1 far OTM call
Delta 0
Gamma -
Theta +
Vega - |
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Term
| Define and determine effect of Delta, Gamma, Theta, and Vega for a Calendar Spread |
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Definition
Buy long option, sell shorter duration (difference in implied volatility)
Delta 0
Gamma -
Theta +
Vega + |
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