# A traded option is available with a delta of 06 a gamma of 15 and a vega of 08

Quite nice I must say. Well, I suppose it was a mix of all these factors that made the movie enjoyable. This also made me realize, there is a remarkable similarity between a bollywood movie and an options trade. These a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 influence an option contract in real time, affecting the premium to either increase or decrease on a minute by minute basis. To make matters complicated, these forces not only influence the premiums directly but also influence each another.

To put this in perspective think about these two bollywood actors — Aamir Khan and Salman Khan. Movie buffs would recognize them as two independent acting forces similar to option Greeks of Bollywood.

They can independently influence the outcome of the movie they act in think of the movie as an options premium. However if you put both these guys in a single flick, chances are that they will try to pull one another down while at the same time push themselves up and at the same time try to make the movie a success.

Do you see the juggling around here? Options Premiums, options Greeks, and the natural demand a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 situation of the markets influence each other.

Though all these factors work as independent agents, yet they are all intervened with one another. For an options trader, assessing the variation in premium is most important. He needs to develop a sense for how these factors play out before setting up an option trade. So without much ado, let me introduce the Greeks to you —. We will discuss a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 Greeks over the next few chapters. The focus of this chapter is to understand the Delta.

The first snapshot was taken at A little while later…. Now notice the change in premium — at In fact here is another snapshot at From the above observations one thing stands out very clear — as and when the value of the spot changes, so does the option premium.

More precisely as we already know — the call option premium increases with the increase in the spot value and vice versa. Keeping this in perspective, imagine this — you have predicted that Nifty will reach by 3: From the snapshots above we know that the premium will certainly change — but by how much? What is the likely value of the CE premium if Nifty reaches ? The Delta measures how an options value changes with respect to the change in the underlying.

At this stage I want to give you an orientation of how this chapter will shape up, please do keep this at the back of your mind as I believe it will help you join the dots better —. We know the delta is a number that ranges between 0 and 1. Assume a call option has a delta of 0. Well, as we know the delta measures the rate of change of premium for every unit change in the underlying.

So a delta of 0. Well, this is fairly easy to calculate. We know the Delta of the option is 0. We are expecting the underlying to change by 22 points —hence the premium is supposed to increase by.

Let us pick another case — what a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 one anticipates a drop in Nifty? What will happen to the premium? Let us figure that out —.

We are expecting Nifty to decline by — 88 points —hence the change in premium will be —. As you can see from the above two examples, the delta helps us evaluate the premium value based on the directional move in the underlying. This is extremely useful information to have while trading options. For example assume you expect a massive point up move on Nifty, and based on this expectation you decide to buy an option.

There are two Call options and you need to decide which one to buy. As you can see the same point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. This should give you a hint — the delta helps you select the right option strike to trade. But of course there are more dimensions to this, which we will explore soon. At this stage let me post a very important question — Why is the delta value for a call option bound by 0 and 1?

To help understand this, let us look at 2 scenarios wherein I will purposely keep the delta value above 1 and below 0. Do you notice that?

The answer suggests that for a 42 point change in the underlying, the value of premium is increasing by 63 points! In other words, the option is gaining more value than the underlying itself.

Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying. If the delta is 1 which is the maximum delta value it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense.

For this reason the delta of an option is fixed to a maximum value of 1 or As you can see in this case, when the delta of a call option goes below 0, there is a possibility for the premium to go below 0, which is impossible. At this point do recollect the premium irrespective of a call or put can never be negative. Hence for this reason, the delta of a call option is lower bound to zero.

However here is a table which will help you identify **a traded option is available with a delta of 06 a gamma of 15 and a vega of 08** approximate delta value for a given option —. Do recollect the Delta of a Put Option ranges from -1 to 0. The negative sign is just to illustrate the fact that when the underlying gains in value, the value of premium goes down. Keeping this in mind, consider the following details —.

Note — is a slightly ITM option, hence the delta is around The objective is to evaluate the new premium value considering the delta value to be Do pay attention to the calculations made below. Hi kartik, Very very thanks for new chapter. Contents are very good and clear but incomplete knowledge create confusion. So, I am waiting with Patience for your completing this module. Thanks for you patience, we are working on the new chapter…will put up up as soon as we can.

Sir Thank you very much for explaining the difficult subject in easy way. Awaiting eagerly for next chapters. The module on Option stratergies will take some time…we will start work on that once the ongoing module on Options Theory is through. If i sell first a stock at 25 and then buy at 20 before expirythen my profit is 5 plus premium received.

Let me rephrase this — If you sell an option not stock at a premium of 25 and buy the option back at 20, then the profit you make is Rs. You may have already realized answer to your question. Hi Karthik Your contents are very lucid that a layman in the Dalal Street can know more about the options trading. Thanks for the contents. Need More classes like this. You are absolutely right — when it comes to option trading you should be using Option Greeks and other parameters to trade and not really Technical Analysis.

Sir, as you mentioned in this conversation: Hi kartik, I am an intra day trader. So, I never wait expiry to collect premium. So my question is — suppose nifty CE with strike price of and premium of and delta or 5. If I were execute an long or short order and price moves some favour in my direction then my profit is equal on long or short position and risk should also be same on long and short orders depending upon the points I trail on stop loss on either side.

The only difference is that I have to deposit margin money on short orders. So when you buy a call option the profit you enjoy is very different from the profits you would enjoy when you are short. Option Calculator helps — check this for now http: You can get the delta value from the Options calculator.

Will discuss Delta against time shortly. As per my understanding option price is decided by last trade price transaction LTP of that option. Then following somehting should not be practically possible. Lets say for example, If nifty is going down and suddenly some people try to buy options in extremely large quantity then that option price should increase but it does not happen.

I have observed there is no relation of volume in price of options. A derivative by definition is a contract that derives its value based on an underlying. Hence technically speaking derivatives cannot influence the spot.

Volume is a function of pure demand and supply…so that is a different perspective all together. So, can we say that volumes in the options does not influence option prices?. It should be the exchange that enforces the prices and not the participants in the options market right? There are more influencing factors than Volume.

Quite nice I must say. Well, I suppose it was a mix of all these factors that made the movie enjoyable. This also made me realize, there is a remarkable similarity between a bollywood movie and an options trade. These forces influence an option contract in real time, affecting the premium to either increase or decrease on a minute by minute basis.

To make matters complicated, these forces not only influence the premiums directly but also influence each another. To put this in perspective think about these two bollywood actors — Aamir Khan and Salman Khan.

Movie buffs would recognize them as two independent acting forces similar to option Greeks a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 Bollywood. They can independently influence the outcome of the movie they act in think of the movie as an options premium. However if you put both these guys in a single flick, chances are that they will try to pull one another down while at the same time push themselves up and at the same time try to make the movie a success.

Do you see the juggling around here? Options Premiums, options Greeks, and the natural demand supply situation of the markets influence each other. Though all these factors work as independent agents, yet they are all intervened with one another. For an options trader, assessing the variation in premium is most important. He needs to develop a sense for how these factors play out before setting up an option trade. So without much ado, let me introduce the Greeks to you —.

We will discuss these Greeks over the next few chapters. The focus of this chapter is to understand the Delta. The first snapshot was taken at A little while later…. Now notice the change in premium — at In fact here is another snapshot at From the above observations one thing stands out very clear — as and when the value of the spot changes, so does the option premium.

More precisely as we already know — the call option premium increases with the increase in the spot value and vice versa. Keeping this in perspective, imagine this — you have predicted that Nifty will reach by 3: From the snapshots above we know that the premium will certainly change — but by how much?

What is the likely value of the CE premium if Nifty reaches ? The Delta measures how an options value changes with respect to the change in the underlying.

At this stage I want to give you an orientation of how this chapter will shape up, please do keep this at the back of your mind as I believe it will help you join the dots better —. We know the delta is a number that ranges between 0 and 1. Assume a call option has a delta of 0. Well, as we know the delta measures the rate of change of premium for every unit change in the underlying. So a delta of 0.

Well, this is fairly easy to calculate. We know the Delta of the option is 0. We are expecting the underlying to change by 22 points —hence the premium is supposed to increase by. Let us pick another case — what if one anticipates a drop in Nifty? What will happen to the premium? Let us figure that out —.

We are expecting Nifty to decline by — 88 points —hence the change in premium will be —. As you can see from the above two examples, the delta helps us evaluate the premium value based on the directional move in the underlying.

This is extremely useful information to have while trading options. For example assume you expect a massive point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to a traded option is available with a delta of 06 a gamma of 15 and a vega of 08.

As you can see the **a traded option is available with a delta of 06 a gamma of 15 and a vega of 08** point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. This should give you a hint — the delta helps you select the right option strike to trade. But of course there are more dimensions to this, which we will explore soon.

At this stage let me post a very important question — Why is the delta value for a call option bound by 0 and 1? To help understand this, let us look at 2 scenarios wherein I will purposely keep the delta value above 1 and below 0. Do you notice that? The answer suggests that for a 42 point change in the underlying, the value of premium is increasing by 63 points! In other words, the option is gaining more value than the underlying itself.

Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying. If the delta is 1 which is the maximum delta value it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense.

For this reason the delta of an option is fixed to a maximum value of 1 or As you can see in this case, when the delta of a call option goes below 0, there is a possibility for the premium to go below 0, which is impossible. At this point do recollect the premium irrespective of a call or put can never be negative. Hence for this reason, the delta of a call option is lower bound to zero.

However here is a table which will help you identify the approximate delta value for a given option —. Do recollect the Delta of a Put Option ranges from -1 to 0. The negative sign is just to illustrate the fact that when the underlying gains in value, the value of premium goes down.

Keeping this in mind, consider the following details —. Note — is a slightly ITM option, hence the delta is around The objective is to evaluate the new premium value considering the delta value to be Do pay attention to the calculations made below. Hi kartik, Very very thanks for new chapter. Contents are very good and clear but incomplete knowledge create confusion. So, I am waiting with Patience for your completing this module. Thanks for you patience, we are working on the new chapter…will put up up as soon as we can.

Sir Thank you very much for explaining the difficult subject in easy way. Awaiting eagerly for next chapters. The module on Option stratergies will take some time…we will start work on that once the ongoing module on Options Theory is through.

If i sell first a stock at 25 and then buy at 20 before expirythen my profit is 5 plus premium received. Let me rephrase a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 — If you sell an option not stock at a premium of 25 and buy the option back at 20, then the profit you make is Rs. You may have already realized answer to your question. Hi Karthik Your contents are very lucid that a layman in the Dalal Street can know more about the options trading.

Thanks for the contents. Need More classes like this. You are absolutely right — when it comes to option trading you should be using Option Greeks and other parameters to trade and not really Technical Analysis. Sir, as you mentioned in this conversation: Hi kartik, I am an intra day trader. So, I never wait expiry to collect premium. So my question is — suppose nifty CE with strike price of and premium of and delta or 5. If I were execute an long or short order and price moves some favour in my direction then my profit is equal on long or short position and risk should also be same on long and short orders depending upon the points I trail on stop loss on either side.

The only difference is that I have to deposit margin money on short orders. So when you a traded option is available with a delta of 06 a gamma of 15 and a vega of 08 a call option the profit you enjoy is very different from the profits you would enjoy when you are short. Option Calculator helps — check this for now http: You can get the delta value from the Options calculator. Will discuss Delta against time shortly. As per my understanding option price is decided by last trade price transaction LTP of that option.

Then following somehting should not be practically possible. Lets say for example, If nifty is going down and suddenly some people try to buy options in extremely large quantity then that option price should increase but it does not happen. I have observed there is no relation of volume in price of options. A derivative by definition is a contract that derives its value based on an underlying. Hence technically speaking derivatives cannot influence the spot.

Volume is a function of pure demand and supply…so that is a different perspective all together. So, can we say that volumes in the options does not influence option prices?. It should be the exchange that enforces the prices and not the participants in the options market right? There are more influencing factors than Volume.

Yes, placing the Call or Put was easy, but making the right Call could Put some traders off. Now education is freely available and people are embracing the learning curve. But another reality is knocking on the door: not all brokers can be trusted.

Ever since the beginning of mainstream binary options, brokerages started springing up like mushrooms after the rain.