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Option Strategies Profit Making Techniques for Stock Index and Commodity Options 2nd Edition_4

Tham khảo tài liệu 'option strategies profit making techniques for stock index and commodity options 2nd edition_4', tài chính - ngân hàng, đầu tư chứng khoán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Advanced Option Price Movements 57 Typically professional traders rebalance their positions whenever the UI moves a certain amount or sometimes they do it every certain number of time periods. For example you may want to rebalance the position every time the underlying moves 1 or at the end of every day whichever comes first. The usually determining factor on the frequency of rebalancing is the transaction costs versus the rebalancing costs. As a result floor traders can afford to rebalance more frequently than retail traders. NOT EQUIVALENTS Even though the expression is delta neutral it is important to realize that no combination of long or short options is the equivalent of or a substitute for a position in the UI except reversals or conversions see Chapter 23 . All the rebalancing and analysis and arbitrage-based pricing models in the world will not make them equal. If they were equal there would be no economic need for one of them. Instruments are relatively simple compared to options. With few exceptions the profit and loss from a UI is strictly related to the price movement. An option is subject to many more pressures before expiration and the profit and loss are nonlinear. The current and future prices of an option are functions of several nonlinear forces. The trader of just UIs is only concerned with the price direction of the UI. An option trader on the other hand should take into account price direction time volatility and even dividends and interest rates. As a result the option strategy may be delta neutral but the effects of gamma vega theta and even rho may cause profits and losses that are not expected by the delta-neutral trader. The point is to keep monitoring the potential effects of other greeks before and during a trade. CHAPTER 5 Volatility VOLATILITY AND THE OPTIONS TRADER Volatility is important for the options trader. The expected volatility of the price of the underlying instrument UI is a major determinant of the price and value of an .