Unformatted text preview: price. Call option prices increase with stock price, thus: Z>X. 2) An Option on stock XYZ has a delta of .5 a gamma of 0 a 7-day theta of -.1 a rho of 2 and a vega of 1. By how much will option XYZ’s price change if one week from today stock XYZ has decreased by $1 and stock XYZ’s implied volatility has increased by 1% and everything else remains unchanged? stock XYZ has decreased by $1 Option decreases by delta*$1 = $.5 stock XYZ’s implied volatility has increased by 1% Option increases by vega*1 = $1. One week goes by Option decreases by Theta*1 = $.1 Total change in option value = -.5 + 1 -.1 = $.4...
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- Winter '08
- Implied volatility, stock xyz, higher implied volatility