I told you yesterday – it’s freezing here. Coldest march ever – god knows. A friend of mine sent a “Happy Easter” E-Mail. Wife and kids on that photo wearing arctic outfit and in the middle of the picture a Snow-Easter-Bunny, 150 cm high.
So it’s not only cold, but people seem to suffer badly, mentally in the first place.
Why do I tell you this? Like yesterday I need to get the 750 words done – but right now my kids are flooding the bathroom…I will be back later.
*** a bit later ***
So, roughly 24 hours later, I swiped the bathroom floor and I shouted at the kids. Plus they will have to shower at least once before they are allowed to use the bathtub again. Crazy folks.
Today they were searching for easter eggs, but this easter it was more like searching for easter presents. It felt like christmas anyway, as it was constantly snowing – and now the kids in the living room unwrapping the presents.
What is the delta on an option
I tried lately to calculate the delta of an option value myself – which seems to be a stupid idea given that I never really fell in love with math. You can look the formula up yourself, if you desire but for giving you at least an idea what delta is about, a short handmade explanation:
The delta is the change of the option price if the underlying index shifts by a certain degree (for instance 1 Euro / 1 point). A bit more practical: I buyed an option to buy 100 shares of the Siemens share to the price of 75 Euro in 30 days. The price when I bought this option was 5 Euro. This price is derived looking at the time (30 days), the volatility (how quickly does the share move in a day / in the last days) and also where the price of that share currently is (and other things).
So imagine the price of a single share was 76 when I bought the option – so the option has an extrinsic value of 1 Euro and 4 Euro which represent all the other aspects (extrinsic value). This option price now changes every second, as the underlying price of that Siemens share moves also every second. The inner value does change all the time, the extrinsic value as well. If I look at this option and I would like to build a scenario where the stock moves 70 Euro, I would like to know what happens to my option value. And this is where delta kicks in. Delta tells me how sensetive my option value to sudden moves of the underlying price is. If my option is 1 Euro in the money (that’s how you call it when an option is based on 75 Euro while the current share price is 76) then a move of 1 Euro in the next second will lower my option price by 1 Euro – or 20%. After that, if it falls again by 1 Euro, I will have a far smaller impact, as the instrinsic value is now zero and I am left with time value and other aspects (volatility again etc.). If the share is at 10 Euro, besides that my option value will be, even 30 days before expiry, almost zero, the delta will almost be zero as well, as a move from 10-11 or 9 will not make a large difference anymore.
Spoke to my mother 90 minutes on the phone – which happens rarely these days – and we reviewed the current discussions regards homosexual marriage and the constant problem German politicians seem to have to equal out the rights for hetero- and homosexuals. There is a nice article out there, which I might translate soon into english, so you can have a proper read on this subject. Till then, enjoy.
P.s.: Word count just said 620 words. What a nightmare, so a little story:
It was summer – roughly 20 years ago. Well they called it summer but clearly neither the temperature nor the clouds really did really show this. I was with my parents in the vicinity of the North Pole, my father being a geologist. We had -2 degrees, which was pretty warm compared to the winter – but I remembered well the last summer in France with 30 degrees and higher. Anyway, we had our summer cloth on without the usual extra pelt – but still the extra thick ice bear fur boots. Walking with those was not really fun, as they were pretty heavy – but it was cozy and I didn’t intend to walk around that much.
Around me was snow and ice, some hills (of snow) and some bumps (inside rock, outside snow). Some rocks had small spots on them, where the snow has melted away. I walked towards one of them, had to do a big step over a crack in the ice then knelt down to take a closer look the small patch of grey in all that white. The rock felt dry and warm, as if it had a heating of its own. My fingertips moved along the cracks and I enjoyed the sensation of not touching snow. I closed my eyes and put my palm fully on the stone. Behind me the soft sounds of a small paw touching the snowy surface.
…might be continued or not.