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Estimating Calendar Spread Option Greeks from Component Calls

Article Quant Q&A · Author: Bogaso
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Summary

The document addresses how to estimate delta and gamma for a calendar spread option as the underlying spread changes, and asks whether empirical studies are available. The response models the calendar spread option as a position involving a short call at one maturity and a long call at another. Under that interpretation, the relevant component option quotes can be used to infer implied volatilities and calculate the component Greeks.

This is a pointer to a valuation approach rather than a worked analysis: it supplies no quote data, computed Greek profiles, empirical study, or details about how to combine the two legs’ sensitivities for a particular contract. Applying it requires suitable quotes for the underlying options and care with maturity, strike, and contract specifications. The answer also does not discuss whether the listed spread option’s payoff or market conventions introduce features beyond the two-call representation.

Key ideas

  • The response represents a calendar spread option as a short call at one maturity and a long call at another.
  • Quotes for the component options can be used to infer implied volatility and calculate Greeks.
  • The document provides no empirical study or numerical delta and gamma profiles.
  • The suggested approach depends on the component options and contract specifications being suitable for the representation.

Tags

OptionsDerivatives pricingCommodities
Full text
# Delta and Gamma profile


# Delta and Gamma profile












There is an active `spread option` traded in ICS as described here - https://www.theice.com/products/28881205/Crude-Future-Brent-1-Month-Calendar-Spread-Options

I am interested to know the `Delta` and `Gamma` profile of such `Calendar spread option` w.r.t. various possible underlying spread values.

Is there any empirical study for such calendar spread option?

Any pointer will be highly appreciated.

## Answer by simsalabim (score 1)

https://quant.stackexchange.com/a/61918

A calendar spread is nothing more than a short call and long call with TTM_1 and TTM_2. If you can find the quotes of those underlying options; you can retrieve the IV and hence the greeks.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.