Questions tagged [delta-neutral]
The delta-neutral tag has no usage guidance.
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Algorithm to open a delta neutral position
I'm not sure how to articulate this problem exactly but what I am looking for as an answer is what approaches could be used to open a delta neutral position for the similar assets across exchanges ...
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At what threshold on delta percentage should I hedge my option portfolio?
I am able to identify and build an option portfolio with long/short call/put options across different strikes and expiries such that the gamma is positive and cost is negative. Upon inception I hedge ...
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Delta neutral and directional change
I read everywhere that you create delta neutral positions to prevent being affected by directional change, and while I certainly agree for basic delta neutral options (a hedged vanilla for example), ...
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Delta-Gamma neutral vs Delta-Vega neutral
Imagine that the underlying stock price is 110. The call option has a strike price of 100. The annualized volatility is 25% and the interest rate is 10%. Finally, the time to maturity is 0.5 years. We ...
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What is the reason for adding 0.5 variance when calculating the ATM DNS of an option?
Why is an Option ATM DNS (Delta Neutral Straddle) strike calculated using exponential value of (rate + 0.5 variance) * t. For ATMF (At the money forward), the rate time is used as the value in ...
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Delta-hedging frequency directly affects PnL, and not just PnL smoothness and variance?
The information I have found about delta hedging frequency and (gamma) PnL on this site and numerous others all reiterate the same thing: that the frequency at which you delta-hedge only has an effect ...
user46424
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Option's Delta Investopedia Question
New to this. In this Investopedia article on Delta the following looks like a typo -
How Do Options Traders Use Delta?
Delta is used by options traders in several ways. First, it tells them their ...
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Confusion Regarding Dynamically Delta Hedging a Short Option
To my understanding, market makers (mm) in the options market dynamically delta-hedge their portfolios by buying/shorting the underlying, thus eliminating directional risk and profiting from providing ...
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Why does volatility increase the expense of delta-hedging?
Consider someone that writes a call, and wishes to delta-hedge against it to remain delta neutral. For this to be profitable, the price they sell this option for should be greater than or equal to the ...
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Gamma-neutral delta-neutral call ratio spread
I have been looking into options strategies that minimize risk via delta neutrality. One such strategy seems to be the gamma-neutral delta-neutral call ratio spread, in which the gamma is neutralized ...
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For what options does the "delta hedging rule" apply?
I'm reading Shreve's Stochastic Calculus for Finance, Volume II. In chapter 4, he derives the "delta hedging rule":
$$\Delta(t) = c_x(t, S(t)) \text{ for all } t \in [0, T)\text{.}\tag{1}$$
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About the implied volatility as average volatility over the life of an option
The first time I read about local volatility, implied volatility turned out to be the average volatility from today to the option's expiry date.
Let we have two Call options, $C_1$ and $C_2$, expiring ...
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Delta neutrality (derivation)
I'm confused about the math for the delta-neutral portfolio.
Assume we have a short position in a European call option with price $p(t,S_t)$ and want to hedge it with the stock with price $S_t$. The ...
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When you are delta-hedging by using shares, what is used? FIFO or LIFO? (Natenberg example)
When delta-hedging and using shares to do so, which "accounting" method should one use via their brokerage when they are executing the said delta-hedging adjustments? FIFO (first-in-first-...
user46424
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Is there any way to check my delta hedging is implemented correctly?
When implementing a Black-Scholes delta-neutral portfolio using Python to perform delta hedging, I am not sure whether I implemented it correctly or not.
Unlike coding binomial trees for European ...
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