| CHAPTER 9 |
The Dynamics of Risk
Nothing in option markets remains constant. Not only are theoretical values constantly changing as market conditions change, but the risk sensitivities are also changing. Understanding how the sensitivities change as market conditions change is an important part of an active option trader’s education.
Following are some important principles of risk dynamics:
An at-the-money option (or, more correctly, an at-the-forward option) has a greater gamma, theta, and vega than a similar in- or out-of-the-money option.
As volatility increases, call deltas move toward 50, and put deltas move toward –50.
As volatility ...