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brain_wash_your

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tT
发表于 2011-7-13 15:29 | 只看该作者

Delta Hedging - Buy/Sell contracts as Delta changes

someone, further, increase, long
**WARNING: I am confused here. If you are confused as well I would not read any further as what I'm about to type may confuse you more and ruin what you learned. ***

Can someone help me with this topic? It's bothered me for awhile now and I'm trying to get some last minute clarification.

For Delta Hedging w/ STOCK (you are long the underlying):
An increase is stock price (assuming no change in delta) --> Buy more options
An increase in delta --> Sell options

For Delta Hedging w/ CURRENCY:
An increase in FX --> Sell more options?
A decrease in FX --> Buy more options?

Thanks.
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justin88

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2#
发表于 2011-7-13 15:29 | 只看该作者
One is a put, one is a call.

Delta is inverse for calls and puts.

A decrease in the FX rate that causes an decrease (remember we are negative here, between 0 and -1) in Delta, would leave you overhedged. Sell puts.

An increase in FX that causes delta to increase (closer to 0), would leave you underhedged and you would have to buy more puts.

That assumes portfolio value is linear, if portfolio value is changing just use t1 portfolio / delta to find new amount of puts to buy.



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 11:08AM by Paraguay.

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