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Let us say underlying is at 50$, and the 50 call is at 0.50.

delta=0.5, gamma =0.5, theta = .02, vega = .10.
I apologize if these numbers are not realistic, I am very poor at Greeks.

My question is: If tomorrow underlying moves 1$ to 51$. Is it possible to do a rough estimate of the option price based on the Greeks? The option will have 1$ intrinsic value.

And extrinsic value will be .50 - .02(theta decay) = .48? So it will cost 1.48?

Another way to think is: Price = current price (.50) + delta effect (0.50) - theta effect (.02) = 1.48 Will the other Greeks come into play too? How?

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It's not that straightforward, even though your gamma will change your delta on the fly, you likely won't see the full $.48 after such a small move.

If the vega drops due to lack of volatility while the stock is moving up, those few percentage points up might help your delta (2% gain $50 to $51 in your example) but will be partially negated by volatility going down.

I mean, don't be surprised to see it at closer to $1.33 or something. The market is out to make money, not to make you money.

  • I understand your point about volatility,but not about gamma. If anything ,the positive gamma should help me, not go against me. – Victor123 Mar 27 '15 at 21:51

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