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suppose you sell a K = 105 call. When the stock reaches exacty 105 you buy 1 stock at 105. Now suppose the stock moves to 104.99, using your logic you sell 1 share at 104. You lost $0.01. Again, after a while stock reaches 105 you buy 1 stock. After some time it goes up, but eventually it goes down again below 105. Thus you sell 1 share below 105. Again ...


Delta hedging implies, loosely speaking, buying a proportion (delta) such that small movements in underlying have no net impact. What you have done with 100% and 0% is, in effect, bought the shares to COVER your position, if the deal goes south. Let's work this out with an example. Say you have a stock trading at \$1 and you WRITE a call with strike \$10. ...

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