Study Notes: Option Sensitivity Measures: The “Greeks”

Chapter 16. Option Sensitivity Measures: The “Greeks” Study Notes contains 28 pages covering the following learning objectives:

* Describe and assess the risks associated with naked and covered option positions.
* Describe the use of a stop loss hedging strategy, including its advantages and disadvantages, and explain how this strategy can generate naked and covered option positions.
* Describe delta hedging for an option, forward, and futures contracts.
* Compute the delta of an option.
* Describe the dynamic aspects of delta hedging and distinguish between dynamic hedging and hedge-and-forget strategy.
* Define and calculate the delta of a portfolio.
* Define and describe theta, gamma, vega, and rho for option positions, and calculate the gamma and vega for a portfolio.
* Explain how to implement and maintain a delta-neutral and a gamma-neutral position.
* Describe the relationship between delta, theta, gamma, and vega.
* Describe how portfolio insurance can be created through option instruments and stock index futures.

After reviewing the notes, you will be able to apply what you learned with practice questions.

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