Questions tagged [delta-hedging]

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53 views

Books and techniques to hedge options that expire tomorrow?

Can anyone point me to books or resources that talk about best techniques to hedge ATM or close to ATM options that expire tomorrow. I am particularly interested on how to hedge if you are short the ...
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78 views

transactions costs and leland modified volatility

When there are transactions costs, we are in a situation of incomplete market. What does the modified volatility of Leland (Option Pricing and Replication with Transactions Costs, 1985) bring us? can ...
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46 views

How should one hedge option positions on the date of expiry?

Let's say we are looking at a non-liquid equity ticker and a slightly OOM option on it. The problem is that if we buy delta to hedge it, it could move the underlying market and push the option to be ...
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436 views

Implied volatility as break-even delta hedge volatility

There have been some posts on this topic, but not what I am looking for, so a new post on an old topic.. I think some/most of us here are familiar with the following formula expressing implied ...
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147 views

Break-even volatility for delta hedge portfolio

After simulating practical and theoretical PnL of a delta hedged portfolio on some data from the SPX500 under 0.15 management Vol I want to find the Vol which gives me an accumulated PnL of 0. ...
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88 views

Correct beta weighted delta options formula?

Is this the correct formula for beta weighted delta: http://www.nishatrades.com/blog/beta-weighted-delta I've seen this What is the formula for beta weighted delta and gamma? but they seem to be ...
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140 views

Can prediction of realized volatility for next day improve delta hedging (gamma scalping)?

Im quite confused. As I understand from standard delta PNL of option + underlying position, pnl is equals to difference between realized and implied vol weighted by gamma. However, as I understood, ...
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85 views

Delta hedge a long option using a short option [closed]

If I long a call option of 1 mio USD/SGD for example, I understand that at strike price (ATM), delta is approximately +0.5. To approximately hedge this delta, I also understand we can short 0.5 mio ...
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2k views

Short Call Hedge. Options and gamma trading

Let’s say a trader sells a Short Call with strike 100 (for making profit with the premium) at-the-money (for highest extrinsic value there). For hedging until expiration, he buys the underlying share ...
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302 views

Risk management for Digital Option at large Bank

Say, an investment bank sell Digital Call Option to its client at strike 100. But trader at the bank want to book the deal with a call spread at 99/100 (price&hedge Digital Option like price&...
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62 views

Using malliavin derivative to find the worst Delta-positive hedge?

Background: I've heard that Malliavin Calculus can be used to show the explicit form of a delta-neutral hedge (given an SDE driven market model). For example, here is a sketch here on page 21 on how ...
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122 views

Delta hedging Question [closed]

What is the delta of a short position in 1,000 European call options on silver futures? The options mature in eight months, and the futures contract underlying the option matures in nine months. The ...
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1answer
94 views

How to manage risk on a call calendar when underlying is falling

Let us say I bough a call calendar spread. Now, at expiry of the short option, the underlying has decreased significantly, and I am approaching my max loss(i.e both the options are close to 0). In ...
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291 views

How to hedge a long stock with the corresponding volatility ETF

Let us say I want to establish a market neutral position. So if I buy 50 shares of stock (SPY) and I want to delta hedge, I sell an ATM covered call. So that brings the position delta to 0. Now, I ...
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136 views

Straddle neutral strategy

What does it mean to implement a delta-neutral strategy for straddle ? A straddle consists in buying a call and a put simultaneously, at the same date, on same underlying, with same maturity and ...
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0answers
361 views

Mock/practice trading for options (delta/gamma hedging etc.)

I know there are some sites for practicing equity investing. But could you provide me with suggestions concerning options trading etc. I read Natenbergs book on Options and want to test things like ...
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2answers
44 views

Binomial model and delta hedging

I've got a question about theory which is probably a one line answer. I use to understand it but I'm stuck right now. In the Binomial model, we define the progression of the price as: $$ S_k = S_{k-...
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2answers
1k views

Dynamic Delta Hedging And a Self Financing Portfolio

Let's assume the usual Black Scholes assumptions hold. My question is related to an answer on this question. There, the weights ($\Delta_t^1$,$\Delta_t^2$) are derived which form a locally risk free ...
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2answers
93 views

Delta Hedged PnL on Call Spread

Suppose I buy a call and then sell a call one dollar in strike higher. Suppose I get into this position for 10 cents lower than it is theoretically worth. (I.e if this spread is worth 0.50 I just ...
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2answers
180 views

Initial holdings of bonds with delta hedging (Black Scholes model)

Consider the Black Scholes model so $$dS_t = \mu S_t dt + \sigma S_t dW_t, \;\;\; dB_t = rB_t dt$$ I want to delta hedge an European call option with strike price $K$ and strike time $T$. It is known ...
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1answer
82 views

Delta heding & PnL

Sorry if it's a duplicate but i didn't find an answer to my simple question in the other posts. Let say we short a call option on a stock. $K = 100$, $C = 1$, $S = 100$ and $\Delta = 0.5$. No ...
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1answer
110 views

In literature, is IV constantly adjusted during option delta hedging?

In a lot of literature, they like to compare the performance of buying an option, and then delta hedging either at that options implied volatility (IV) or the true future volatility. This is under ...
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1answer
204 views

Market Maker ETF Hedging Strategy

Some thoughts about ETF hedging; feel free to leave comments! Scenario 1: An investor sells 1M ETF shares to a Market Maker(MM) at bid price. MM has a long position and will need to offload the ...
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1answer
201 views

Delta hedging theta pnl

Say I sell a swaption and delta hedge it, and the breakeven daily move in the underlying is $x$ bps. Then if on any given day the actual move in the underlying is $y$ bps $( y <x)$. Then I, as ...
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1answer
173 views

How is the performance measure computed here?

The image is from John C Hull Textbook titled Options, Futures and Other Derivatives ( page 407 - Ninth Edition). The table above was obtained after computing the delta of stock price, shares ...
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2answers
656 views

Hedging with machine learning

I’ve been thinking about an interesting problem lately: Suppose I have a position in an exotic derivative. How can I automate the hedging process? Traditionally, one build a pricing model and ...
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2answers
798 views

How does a Delta Hedged portfolio yield the Risk-free?

Here I'm considering the simple case of a dealer writing call options on a stock and hedging the short position with a "textbook" Delta Hedge, i.e. goes long on $N_c \times Delta$ stocks (where $N_c$ ...
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1answer
283 views

Difference in exposure between delta hedged options, ATM straddles and delta hedged straddles

What is the difference in exposures between delta hedged options, ATM straddles and delta hedged straddles. They all seem to provide the same thing, which is exposure to volatility. What are the ...
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1answer
1k views

Bachelier model call: computation of delta of a call option

The price of a call with a stock with Bachellier process as its underlying and zero interest rate is giving by: $$C(t)=(S(t)-K)\Phi(\frac{S(t)-K}{\sigma \sqrt{T-t}})+\sigma \sqrt{T-t} \phi(\frac{S(t)-...
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1answer
338 views

Why doesn't the overnight profit on a delta-hedged porfolio include interest on the initial selling/buying of the option?

I am self-studying and encountered the following passage from my textbook on the market maker's overnight profit on a delta-hedged portfolio: I don't understand why their isn't a factor of $(e^{r/365}...
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1answer
47 views

Why my delta position is increasing with increase in spot?

I am trying to take position in future as per the delta position of short put. My strike is 13794 for short put option, spot 10305.3 and volatility is 20.153 then I am getting 5890 position to buy and ...
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1answer
47 views

Long positions (call or put) have positive gamma, and short positions (call or put) have negative gamma

I was reading a lot about the idea that long positions (call or put) have positive gamma, and short positions (call or put) have negative gamma. But I couldn't understand why. In "Bunds and Bund ...
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1answer
77 views

Is it possible to construct a hedge that matches value Delta Gamma and Vega?

Given a strike price, current price, risk free rate, dividend yield and volatility, I have been asked to calculate: - a hedge which matches the value Delta and Gamma - a hedge which matches the value ...
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Synthetically sell to close puts in limited-margin IRA

Suppose: I bought an American put on a stock in a retail brokerage IRA, where I can't sell short or write uncovered options. The put is ITM and has served its purpose for hedging. The put is thinly ...
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1answer
94 views

How do you price an option on multiple things>

Suppose, for simplicity, I want to cover the U.S. stock market by buying ETFs for the Russell 1000 and Russell 2000. But I want to overweight small cap, so the Russell 3000 won't do. Also, let's ...
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48 views

Hedging option delta

Let's say I am long 1000 50 delta call options. I need to hedge my deltas now. There can be infinite ways to do this. How should I think about proceeding wit this? My first thought was, if the ...
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0answers
144 views

Understanding delta based strike selection in an Iron Condor

I am reading a small book on the proper use of Iron Condors (link). I do not use these strategies as I have had a very hard time being profitable on them. This book mentions some strategies to ...
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110 views

replicate option by dynamic hedging

I've just started working for a company with a decent commodity exposure. They manage this by as they call it dynamically hedging it. Basically when they start the hedging they identify a market ...
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4answers
130 views

What is the effect of increasing volume depth to stock volatility? [closed]

Say, an investment bank want to hedge its Long Gamma position on its Long Call option by placing limit orders in the exchange. Limit orders result in increasing volume depth. Empirically, what is the ...
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1answer
653 views

Delta Hedging: Clarification example of the book “Hull, Options, Futures, and Other Derivatives” [closed]

By "Hull, Options, Futures, and Other Derivatives": Suppose that, in figure,the stock price is \$100 and the option price is \$10. Imagine an investor who has sold 20 call option ...
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2answers
71 views

Delta Forward and Put Call Parity

Vanilla options are traded interbank with delta hedge. The instrument employed to a delta hedge is usually a forward with the same expiry (and opposite delta) as the option. This means that in effect ...
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31 views

Delta hedging and gamma hedging

Suppose that we are working in a Black-Scholes framework considering two European put options on a dividend paying stock. The stock has a price of 70, the stock pays dividends continuously at a yield ...
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1answer
226 views

Can we 'predict' the delta of a stock? The delta of a stock is $\pm 1$ right? [closed]

“A stock is like a living organism. A sparrow, say. And we are able to create an emergent-based abstraction of that sparrow, which closely approximates the sparrow itself, accounting for migration ...

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