What is theta and delta in an options equasion and what is the formula for pricing of an option on a given mom

Question

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Answer 1

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Theta - the amount an options value will change due to the passage of 24 hours. For example, if an option's fair value is $2.00 and the theta of the option is -0.005, barring any other changes the option's fair value will be $1.995 24 hours from now.

Delta - the amount an options value will change, when multiplied by the change in price of the underlying, due to a small change in the price of the underlying. For example, assume a stock price of $101, that a $100 call has a delta of 0.6 and that a $100 put has a delta of -0.4. If the price of the stock moved to $101.50 the call option would increase in value by (0.6 x 0.50) = $0.30 and the put option would decrease in value by (0.4 x 0.50) = $0.20.

The formulae for theta and delta are given at

http://en.wikipedia.org/wiki/Greeks_%28finance%29

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Theta and delta are used to measure the change in the price of an option, not to determine the price of an option.

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Different formulae are used, but the most famous is the Black Scholes model. Using Black Scholes the formulae for the prices for calls and puts is given at

http://www.quickmba.com/finance/black-scholes/

Answer 2

Theta is time.

Delta is the probability or percentage an option will be "in the money" - "ITM" - when the option expires.

I don't understand about "on a given mom".

Here's what I was taught about options:

Buy one price In the money; sell one price out of the money - "OTM".

For Calls: You want a Delta of not less than .72 and not more than .92

For Puts: You want a Delta of -.72 and not more than -.92

How long to buy the option for? Go through your trades to see how long you are in your average trade, THEN ADD 30 days to 60 days to that time.

There is A LOT more to learn about options.

Options provide "more bang for the buck".

Thanks for asking your Q! I enjoyed answering it! Happy New Year!

VTY,
Ron Berue
Yes, that is my real last name!

Answer 3

That's easy. You will find that formula on the internet.