Derivative and risk Management

1. Using the inputs given below, you have to calculate the Option Greeks-Delta, Gamma, Theta and Vega. You do not have to submit these values as part of your report.

2 . You have to state your observation for each option Greek along with an explanation. For instance, "The delta of the OTM option increases when vols increases. This is because ......"

You have to make such observation for each Option Greek for ITM, ATM and OTM options.

3. You are also required to make two suggestions on how your observations can be used in setting up trading strategies on options.

The format is as follows:

Observations

Delta: (make observations for ITM, ATM and OTM options)

Gamma: (make observations for ITM, ATM and OTM options)

Theta: (make observations for ITM, ATM and OTM options)

Vega: (make observations for ITM, ATM and OTM options)

Suggestions for applying Greeks in trading strategies

1.

2.

6. Inputs for calculating option Greeks. Please use the Espen Haug Option Calculator

Base inputs:

Call strike 80, 100, 120

Spot price 100

Vols 60%

Days to maturity: 15

Interest rate: 4%

Scenario 1: Apply all the base inputs to calculate option Greeks

Scenario 2: Change vols from 60% to 30% using all other base inputs

Scenario 3: Change vols from 60% to 90% using all other base inputs

Scenario 4: Change days to maturity from 15 days to 5 days using all other base inputs

Scenario 5: Change days to maturity from 15 days to 5 days, vols from 60% to 90% using all other base inputs.

Scenario 6: Change days to maturity from 15 days to 5 days, vols from 60% to 30% using all other base inputs.