Option- relationships

[DavidM]

Hi David,

What is the significance of Options being deep in the money or at the money?

For both Call and Put. Because I have done a number of option questions from 2006-2007 practice exams and I have noticed that GARP likes to through this concept into the mix a lot.

It kind of throws me of because I just about make sense of the question but i haven't fully grasped that concept.

And it can get rather confusing when you have got to consider all the other concepts/permutations of Options like wether you are short or long or if there is a case for arbitrage----"All within a 2-minute window"

*This concept is slightly above the basic how will the option value/price change if r/T/volatility....changes*

Could you please give me a break down on the kind of relationships that are "key" to rememeber for Options? i.e.(that may be slightly beyond the table you give on page 82-of your Financial Market Product Notes)

Apologies for the slightly open ended question but would really like to here your thoughts on this

I think it is important.

Thanks!

David.

 

[David Harper CFA FRM]

Hi David,

Right, I follow you ... I agree the sample questions do tend to dwell (a bit) on ITM/ATM/OTM for option positions vis a vis Greeks (and long/short) ... yes, I will prepare a one-page cheat sheet on this (it's not too hard), I think that would be useful. Just give me a bit of time (I have a few of these sorts of things in the works; e.g., asja asked for a similar sort of summary of credit risk portfolio models, which i think is useful, too)...so just give me a few days, etc ...thanks, David