Option delta

[darshang3]

Hi david

The delta of at the money put option is close to -0.5.Delta goes to -1 as put becomes deep in the money. delta is 0 if put goes to deep out of the money.

this was regarding put options. wat abt call options can we take inverse values?

 

[darshang3]

also how to convert daily volatility to annual volatility...

 

[msoni]

I think may be I can reply for first question -

You are correct - 0.5 for at the money call, 1 for deep in the money and 0 for out of money call.

 

[David Harper CFA FRM]

Agreed with Mahendra (you see -0.5 as ballpark for ATM; I sort of wish they wouldn't round like that because it varies with term... ATM call delta often more like +0.6 such that put delta more like 0.6 - 1 = -0.4 or less for longer term)

you can intuit these 1/0 deltas: if you are deep ITM, a +$1 stock increase goes right to your intrinsic value; if you are deep OTM, $1 doesn't help you much

to scale daily, the square root rule says annual var = daily vol * SQRT(trading days/1); e.g., daily vol * SQRT(252)
...but the requires i.i.d., which is dubious so we want to know we are probably making an error;
e.g., see Jack's summary here where he says the impact of autocorrelation (autocorrelation is a breach of i.i.d.)

David