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View Full Version : Questions about ASM Practice 1

alan711031
October 6th 2007, 09:37 PM
#7 how come the Theta for a call opion is more likely to be "positive"?

Theta is a negitive derivative. right?

#17 In the question, they didn't mention about K strike price, how come the

answer tells the K is 40?

Please tell me why, cause I am really confused.

Abraham Weishaus
October 6th 2007, 09:46 PM
#7: Indeed it is a negative derivative, so less time==>more valuable makes theta higher.

#17:"at the money" means strike=current price.

alan711031
October 6th 2007, 09:53 PM
but why it says that Theta for a call option is more liely to be "positive?

Abraham Weishaus
October 6th 2007, 09:59 PM
In the case of (A), because the call option is very likely to pay off, so the less time to maturity, the less discounting of the payoff and the more valuable the option is.

In the case of (B), the dividends lower the payoff, so you'd like to have less time to maturity so that there will be fewer dividends.

alan711031
October 6th 2007, 10:18 PM
thank you for you explaination, but I'm still confused.

can you give me some example?