# Questions tagged [delta-neutral]

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25 questions
90 views

### Delta neutral strategy using a combination of put and call options

I am learning about quantitative finance and currently learning about delta neutral strategies. The examples given are most of the times of the form: if you buy call options, you can hedge your ...
221 views

### Swaptions Gamma Interview Questions

A while ago, I interviewed for a trader role and was given the below assignment (I didn't get the job). I wanted to revisit the questions to learn from my mistakes and be better prepared next time. ...
130 views

### Risk management tools for long term Gamma/Vega sellers subject to margin calls

TL;DR: if you're a retail investor and you systematically sell long-term vertical spreads while staying Delta-neutral, your main risk comes from Vega and the Gamma of opening gaps that can throw you ...
34 views

### Going from Stochastic Discount Factor / Risk Neutral Density -> Hedge Ratio

Assuming a probability distribution function is known in its entirety, what methods are available to construct a hedge ratio? For guidance, I went to the canonical Empirical Pricing Kernels and found ...
364 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 $N_c$ ...
232 views

So in Delta Hedging, we know that the delta value gives us the hedge ratio between the option and the stock. For example, if we are long 10 shares of stock, and the delta value is 0.5, then we would ...
42 views

### Calculate latest underlying price (or option), given new option (or underlying) market price?

Given a reference underlying price, reference option price, delta and gamma, if I receive a new underlying/option price what equation should I use to calculate the respective option/underlying price (...
626 views

### Gamma Imbalance / Exposure

I am currently writing my thesis about the lack of volatility / changing market structure we see nowadays on the financial market. I believe an important factor in this development is the delta-...
5k views

### Proof of gamma profit formula

http://www.volcube.com/resources/options-articles/gamma-hedging-trading-strategies-part-i/ I would like to have proven to me the above formula, mostly because I don't quite understand it. The formula ...
133 views

### Delta re-hedging with options

What are the pros and cons of delta re-hedging an option combination (straddle, strangle etc...) with options of the same underlying rather than with the underlying itself? I am having a hard time ...
46 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 ...
52 views

### Delta hedging of tax option

So corporate profits are taxed as a percentage of the positive earning, but losses will not generate any taxes. Hence taxation have a clear option structure where the government has a call option on ...
615 views

### How frequently do traders rebalance their gamma hedges?

Say, for instance, that you've set up a delta-neutral straddle (i.e. you are long volatility, short time decay) and want to dynamically hedge your gamma in order to offset losses due to theta. Is ...
129 views

### Example of optimal delta hedging in G. Barles, H.M. Soner option pricing paper

There is a paper Option pricing with transaction costs and a nonlinear black-scholes equation by Guy Barles and Halil Mete Soner. And there is a section about optimal (delta) hedging, which I do not ...
647 views

### Delta and gamma neutral

A financial institution currently has a portfolio with delta of 450 and gamma of 6,000. A traded option is available with a delta of 0.6 and a gamma of 1.5. How could the portfolio be made both delta ...
77 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 ...
183 views

### Delta-Gamma Neutral portfolio, derivation issue

Let $C$ be an option on an underlying $S$. I want to construct a portfolio $V$ using another asset $C_0$ such that the delta and the gamma of $V$ is the same as the delta/gamma of $C$, in order to ...
1k views

### Breakeven of a delta-hedged option

Basic question to which I surprisingly did not find an answer on here. What's the best approximation to the break-even (with respect to stock price) for an option that was hedged fully at point of ...
604 views

### Discrete time Ho lee model

This is my first question in this forum. I am stuck with my current testing the Ho Lee model. I am having difficulty computing the perturbation factor $\Delta$. The ho lee model should be completely ...
454 views

### Delta-Omega Hedging [closed]

I am currently trying to understand the in's and out's of options and more specifically hedging. I came across a document that was talking about Delta Hedging which is just making sure the delta of ...
2k views

### How should I estimate the implied volatility skew term when calculating the skew-adjusted delta?

I'm trying to come up with the implied volatility skew adjusted delta for SPY options. I'm working with the following formula: Skew Adjusted Delta = Black Scholes Delta + Vega * Vol Skew Slope. I ...
3k views

### Why are options trades supposed to be delta-neutral?

I'm reading Natenberg's book, and he says that all options trades should be delta neutral. I understand that this prevents small changes in the underlying price from changing the price of the option, ...
16k views

### How do I calculate the delta of a convertible bond?

How can I find the delta of a convertible bond to be used for hedging?