Gamma and Theta

[itsyourz]

Hi David,

if i short call option of a stock, which is ATM and its maturity is very short

what kinds of greeks pose the highest risk to my position?

Gamma, of course. is it because i am in short position?

if i long this option, i got plus gamma, then it's not risk, is it?

How about Theta which is the absolute highest on short-term and ATM option

in this case of short position, Theta must be Positive

so that it is not a risky factor at all.

Am i Right?

 

[David Harper CFA FRM]

Hi okaybody,

short call, short term, ATM = gamma risk.
gamma is always positive: the long call/put is always benefiting from gamma (i.e., positive gamma * long position = positive position gamma), the short cal/put position is always risky from gamma (i.e., positive gamma * short position = negative position gamma)

vega is a risk, but less for short TERM: vega is higher with longer maturity.

theta is NOT CONSIDERED TO BE A RISK FACTOR, ever simply because it is "deterministic:" both counterparties know that time is marching forward, it is the one factor here that can be predicted. I don't think theta will ever be a risk factor in these questions

David