Greek options odds
As the stock moves higher, the Delta increases, at least until it reaches When this option was purchased, the Delta was at 19 the Table shows a Delta because that data point is taken one-week later.
Once again, the rate at which money is earned accelerates. Thank you, Gamma! Remember when the Gamma changed from 4.
In conclusion, positive Gamma is beneficial to the option owner while the cost of owning that Gamma is Theta. Positive Gamma results in an increase of useful Delta i. To put it simply: Positive Gamma makes a good thing better.
What About Negative Gamma? If the above scenario painted a pretty picture for the option owner, then the picture must be the exact opposite for the person who sold the option, especially with no offsetting hedge. That trader has encountered negative I offer additional income. To put it simply: Negative Gamma makes a bad situation worse.
Earning a Profit with Negative Gamma Why would a trader elect to take the risk that comes with owning greek options odds positions? For the option owner to earn a profit, the underlying stock must move in three ways.
Move in the right direction up for calls, down for puts Move quickly to prevent the loss of too much money to Theta time decay Move far enough to overcome the cost of buying the option That is a lot of movement and most traders have a difficult time predicting market direction without a time limit. Warning: If selling options sounds good, be very careful.
Markets sometimes undergo unexpected price changesand the option seller can get hurt.