why gamma decreases when option is deep in the money?
Gamma decreases when a call option goes either deeper in, or deeper out of the money. That is due the demand for the call option. I can imagine the demand for the option would decrease as it goes deeper out of the money, but I would expect the demand for the option should increase as it goes deeper in the money because it would make more profit for the holder of the option. Why is this not true? In other words, why does the demand for the option decrease despite the fact that a deep in the money option is more profitable?
option-pricing greeks delta-hedging
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kave kakave ka
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Gamma decreases when a call option goes either deeper in, or deeper out of the money. That is due the demand for the call option. I can imagine the demand for the option would decrease as it goes deeper out of the money, but I would expect the demand for the option should increase as it goes deeper in the money because it would make more profit for the holder of the option. Why is this not true? In other words, why does the demand for the option decrease despite the fact that a deep in the money option is more profitable?
option-pricing greeks delta-hedging
asked 3 hours ago
kave kakave ka
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
add a comment |
Gamma decreases when a call option goes either deeper in, or deeper out of the money. That is due the demand for the call option. I can imagine the demand for the option would decrease as it goes deeper out of the money, but I would expect the demand for the option should increase as it goes deeper in the money because it would make more profit for the holder of the option. Why is this not true? In other words, why does the demand for the option decrease despite the fact that a deep in the money option is more profitable?
option-pricing greeks delta-hedging
asked 3 hours ago
kave kakave ka
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Gamma decreases when a call option goes either deeper in, or deeper out of the money. That is due the demand for the call option. I can imagine the demand for the option would decrease as it goes deeper out of the money, but I would expect the demand for the option should increase as it goes deeper in the money because it would make more profit for the holder of the option. Why is this not true? In other words, why does the demand for the option decrease despite the fact that a deep in the money option is more profitable?
option-pricing greeks delta-hedging
option-pricing greeks delta-hedging
asked 3 hours ago
kave kakave ka
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 3 hours ago
kave kakave ka
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 3 hours ago
kave kakave ka
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 3 hours ago
kave kakave ka
61
asked 3 hours ago
kave kakave ka
61
61
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
New contributor
kave ka is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
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add a comment |
2 Answers
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Gamma is not linked to the supply/demand for an option. It is a purely analytic effect that reflects the convexity of the product.
answered 1 hour ago
EzyEzy
1,10139
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Gamma is the speed at which Delta changes. When options are deep in the money, they trade like the underlying. In other words the Delta doesn't change and therefore Gamma is zero. In mathematical terms, the second derivative which measures the rate of change of the first derivative, is zero if the first derivative is a constant.
With respect to demand for the option, if it trades like the underlying, I would expect that the traders of options that are using it for the optionality would not be in the market for those options. For those that are looking for constant Delta, the could just buy the underlying and adjust for any implied leverage in the option by just taking a leveraged position.
answered 1 hour ago
AlRacoonAlRacoon
1,11426
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2 Answers
2
active
oldest
votes
2 Answers
2
active
oldest
votes
active
oldest
votes
active
oldest
votes
Gamma is not linked to the supply/demand for an option. It is a purely analytic effect that reflects the convexity of the product.
answered 1 hour ago
EzyEzy
1,10139
add a comment |
Gamma is not linked to the supply/demand for an option. It is a purely analytic effect that reflects the convexity of the product.
answered 1 hour ago
EzyEzy
1,10139
add a comment |
Gamma is not linked to the supply/demand for an option. It is a purely analytic effect that reflects the convexity of the product.
answered 1 hour ago
EzyEzy
1,10139
Gamma is not linked to the supply/demand for an option. It is a purely analytic effect that reflects the convexity of the product.
answered 1 hour ago
EzyEzy
1,10139
answered 1 hour ago
EzyEzy
1,10139
answered 1 hour ago
EzyEzy
1,10139
answered 1 hour ago
EzyEzy
1,10139
1,10139
add a comment |
add a comment |
Gamma is the speed at which Delta changes. When options are deep in the money, they trade like the underlying. In other words the Delta doesn't change and therefore Gamma is zero. In mathematical terms, the second derivative which measures the rate of change of the first derivative, is zero if the first derivative is a constant.
With respect to demand for the option, if it trades like the underlying, I would expect that the traders of options that are using it for the optionality would not be in the market for those options. For those that are looking for constant Delta, the could just buy the underlying and adjust for any implied leverage in the option by just taking a leveraged position.
answered 1 hour ago
AlRacoonAlRacoon
1,11426
add a comment |
Gamma is the speed at which Delta changes. When options are deep in the money, they trade like the underlying. In other words the Delta doesn't change and therefore Gamma is zero. In mathematical terms, the second derivative which measures the rate of change of the first derivative, is zero if the first derivative is a constant.
With respect to demand for the option, if it trades like the underlying, I would expect that the traders of options that are using it for the optionality would not be in the market for those options. For those that are looking for constant Delta, the could just buy the underlying and adjust for any implied leverage in the option by just taking a leveraged position.
answered 1 hour ago
AlRacoonAlRacoon
1,11426
add a comment |
Gamma is the speed at which Delta changes. When options are deep in the money, they trade like the underlying. In other words the Delta doesn't change and therefore Gamma is zero. In mathematical terms, the second derivative which measures the rate of change of the first derivative, is zero if the first derivative is a constant.
With respect to demand for the option, if it trades like the underlying, I would expect that the traders of options that are using it for the optionality would not be in the market for those options. For those that are looking for constant Delta, the could just buy the underlying and adjust for any implied leverage in the option by just taking a leveraged position.
answered 1 hour ago
AlRacoonAlRacoon
1,11426
Gamma is the speed at which Delta changes. When options are deep in the money, they trade like the underlying. In other words the Delta doesn't change and therefore Gamma is zero. In mathematical terms, the second derivative which measures the rate of change of the first derivative, is zero if the first derivative is a constant.
With respect to demand for the option, if it trades like the underlying, I would expect that the traders of options that are using it for the optionality would not be in the market for those options. For those that are looking for constant Delta, the could just buy the underlying and adjust for any implied leverage in the option by just taking a leveraged position.
answered 1 hour ago
AlRacoonAlRacoon
1,11426
edited 1 hour ago
answered 1 hour ago
AlRacoonAlRacoon
1,11426
answered 1 hour ago
AlRacoonAlRacoon
1,11426
answered 1 hour ago
AlRacoonAlRacoon
1,11426
1,11426
add a comment |
add a comment |
kave ka is a new contributor. Be nice, and check out our Code of Conduct.
kave ka is a new contributor. Be nice, and check out our Code of Conduct.
kave ka is a new contributor. Be nice, and check out our Code of Conduct.
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