Delta represents the probability a stock is going to finish in the money?
True, a stock that has a 75% chance to finish in the money will have a .75 delta.
Stock XYZ is trading $40 and you own one 40 strike price call contract. If the stock trades up to $41 how much profit will you make on this move?
One contract means the option settles into 100 shares. An at the money strike means the options has a .50 Delta. We know the stock price movement was $1.
So: 100 shares x .50 Delta x $1 stock change = $50
Stock ABC is trading $105 and you own one 100 strike price put contract, which has a Delta of -.43. If the stock trades up $1 what your P&L on the trade?
100 shares x -.43 Delta x $1 stock change = $-43
Note: If the stock would have traded down $1 you would have made $43.
Stock ABC is trading $105 and you own one 100 strike price put contract, which has a Theta of .10. After one week, how much decay will this options price experience?
This option would decay $.10 every day for seven days, so it would lose $.70 due to decay. For those who answered $.50, options decay even on non-trading days like weekends or holidays.
Stock XYZ is trading $40 and you own one 40 strike price call contract, which has a Vega of .15. If implied volatility went up 2%, what would be your P&L after the change?
The option would increase in value by the number of shares controlled times the Vega times the percentage increase.
100 shares x .15 Vega x 2 implied volatility increase = $30
