Options leverage, also known as lambda, is the percentage change in the options price divided by the percentage change in the underlying spot price.
It can be shown that leverage of a call is (delta lnC / delta ln S). Alternatively, it is also delta multiplied by S over C, i.e. ratio of underlying price to call price. Lambda is also known as logarithmic delta.
It would be interesting to compare the leverage of different options, how it varies with moneyness and how it varies with asset class. Is there convexity in leverage?
Eric Benhamou's paper is a good introduction to option leverage.
As a trader, it is interesting to calculate leverage for each of your positions.
It can be shown that leverage of a call is (delta lnC / delta ln S). Alternatively, it is also delta multiplied by S over C, i.e. ratio of underlying price to call price. Lambda is also known as logarithmic delta.
It would be interesting to compare the leverage of different options, how it varies with moneyness and how it varies with asset class. Is there convexity in leverage?
Eric Benhamou's paper is a good introduction to option leverage.
As a trader, it is interesting to calculate leverage for each of your positions.
No comments:
Post a Comment