GREEKS

swarnendupathak
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GREEKS

Postby swarnendupathak » Thu Nov 01, 2012 2:07 pm

If the risk is defined as a potential for unexpected loss, then which factor contribute to the risks of a long put option position??

(a) Delta, vega, rho
(b) Vega, rho
(c) Delta, vega, gamma, rho
(d) Delta, vega, gamm, theta rho.

Please explain...
Swarnendu

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swarnendupathak
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Re: GREEKS

Postby swarnendupathak » Fri Nov 02, 2012 9:29 am

Please reply.... thanks in advance

Swarnendu

swarnendupathak
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Re: GREEKS

Postby swarnendupathak » Fri Nov 02, 2012 3:29 pm

Please reply


Swarnendu

vandana.jain
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Re: GREEKS

Postby vandana.jain » Fri Nov 02, 2012 4:36 pm

Is the a ans. is c ? As delta gamma and rho are positive in long position correct me if I m wrong

content.pristine
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Re: GREEKS

Postby content.pristine » Fri Nov 02, 2012 4:41 pm

Swarnendu,

I understand that your exams are coming up soon but please understand that we answer queries within two business days.

About your query:
Lets take the greeks one at a time:
1. Delta: It is a risk factor for a put since, the higher (further away from -1, closer to 0, the more the risk of the option since it is getting out of the money)
2. Gamma: It is highest for at the money options, so numerically, it doesnt distinguish between ITM and OTM.. This is not a risk factor
3. Vega: Higher the Vega, the better. Lower the Vega, higher the risk. Hence Vega is a risk factor.
4. Theta: this is a risk factor, as the time value of the option decreases over time. However, this is NOT unexpect. This is not a risk factor.
5. Rho: When risk free rate increases unexpectedly, the values of a put lowers. Hence this also a risk factor.
Answer: A.

Hope this makes things clear. Let me know if you have any more doubts.

8-)


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