OK, thanks. I found the thread somewhat hard to follow and didn’t read it all carefully.
IheartMath Wrote: ------------------------------------------------------- > we ended up agreeing that it is not…* *for a european, dividend paying stock
MattLikesAnalysis Wrote: ------------------------------------------------------- > IheartMath Wrote: > -------------------------------------------------- > ----- > > we ended up agreeing that it is not…* > > *for a european, dividend paying stock right… but it is for a european, non dividend paying stock…
How could it possibly be near 1 for any call option with 70 years to expiration? That seems preposterous.
see a lot of the math on previous pages… all theoretical of course…
because if it didn’t move hand-in-hand with the underlying, there would be risk-free profits available after day 1
Just intuitively, delta approaches 1 as you get near expiration, right? So it would be further from 1 for an option with 3 days to expiration than for one 30 seconds from expiration, right? Wouldn’t your risk-free argument if correct hold for an option with 3 days to expiration far more than for one with 70 years to expiration?
MattLikesAnalysis Wrote: ------------------------------------------------------- > because if it didn’t move hand-in-hand with the > underlying, there would be risk-free profits > available after day 1 not if its a European call
Captain Windjammer Wrote: ------------------------------------------------------- > Just intuitively, delta approaches 1 as you get > near expiration, right? So it would be further > from 1 for an option with 3 days to expiration > than for one 30 seconds from expiration, right? > Wouldn’t your risk-free argument if correct hold > for an option with 3 days to expiration far more > than for one with 70 years to expiration? not if its At the money option. They would all behave the same assuming they are all American options.
ZeroBonus Wrote: ------------------------------------------------------- > Captain Windjammer Wrote: > -------------------------------------------------- > ----- > > Just intuitively, delta approaches 1 as you get > > near expiration, right? So it would be further > > from 1 for an option with 3 days to expiration > > than for one 30 seconds from expiration, right? > > > Wouldn’t your risk-free argument if correct > hold > > for an option with 3 days to expiration far > more > > than for one with 70 years to expiration? > > > not if its At the money option. They would all > behave the same assuming they are all American > options. and zero premium
As I said, the notion that a $1 move in the price of the underlying should result in a $1 move in the price of any option expiring 70 years from now seems intuitively preposterous to me.
IheartMath Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > > all previous discussion on this by me assumed > that > > we are talking about an american option b/c who > > buys european options anymore? > > > you seemed to also be under the assumption that we > werent considering dividends, in which case an > american and european call option would be priced > the same according to B-S anyway. (in your > example, if we did come up with some continuous > dividend return then delta would be much much > lower due to the time frame) > > further, B-S definately cannot be used to price an > american option anyway… especially with our > ridiculous time horizon.
ZeroBonus Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > because if it didn’t move hand-in-hand with the > > underlying, there would be risk-free profits > > available after day 1 > > > not if its a European call in the example in pages before this, if the option doesn’t move 95%ish of the % change in the underlying, isn’t there a risk-free profit. isn’t that what delta is telling you? where 95% equals N(d1) assuming no dividends.
nvm
Posted by: MattLikesAnalysis (IP Logged) [hide posts from this user] Date: August 4, 2009 04:20PM ZeroBonus Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > because if it didn’t move hand-in-hand with the > > underlying, there would be risk-free profits > > available after day 1 > > > not if its a European call > >in the example in pages before this, if the option doesn’t move 95%ish of the % change in the underlying, isn’t there a risk-free profit. isn’t that what delta is telling you? where 95% equals N(d1) assuming no dividends. > no, delta is simply the change in option price for $ change in stock price. if we were to create a replicating portfolio though with our delta that was not the same as the price the call option were selling for then yes there would be opportunity for arbitrage.
MattLikesAnalysis Wrote: ------------------------------------------------------- > ZeroBonus Wrote: > -------------------------------------------------- > ----- > > MattLikesAnalysis Wrote: > > > -------------------------------------------------- > > > ----- > > > because if it didn’t move hand-in-hand with > the > > > underlying, there would be risk-free profits > > > available after day 1 > > > > > > not if its a European call > > > in the example in pages before this, if the option > doesn’t move 95%ish of the % change in the > underlying, isn’t there a risk-free profit. isn’t > that what delta is telling you? where 95% equals > N(d1) assuming no dividends. no because you can’t exercise the option until 70 years from now.
Only on AF; seven pages on long call delta!
you like it.
yeah sorry. i meant if the actual option delta doesn’t match that of the theoretical delta, isn’t there an arbitrage opportunity in theory?
I am not going to spend any more time on this, but with all due respect I’ve been left with the impression so far that a few posters in this thread have absolutely no idea what they are talking about. Maybe I’m wrong; I guess I’ve been that wrong before, though rarely.