Options Wizard - Quiz

Discussion in 'SP6' started by Edwin, Aug 13, 2015.

  1. Edwin

    Edwin Member

    A Long call option on futures with the following specs: futures price $50, strike $50, time to maturity 4.5 years, interest rate 8%, volatility 100%. Theta is calculated as 0.1156. How should I make of positive theta?

    Hint;- The theta of an Option is usually negative.
     
  2. Mike Lewry

    Mike Lewry Member

    Interesting.

    Using Hull's DG201.xls spreadsheet, I get theta as 0.0003 per calendar day for these inputs, which agrees with your "per year" figure.

    The graph of theta against volatility is interesting (and is attached), showing that theta only goes positive once vol hits 94%, but gets increasingly positive as vol rises further.
     

    Attached Files:

  3. Mike Lewry

    Mike Lewry Member

  4. Edwin

    Edwin Member

    Googleplex!
     

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