标题: Delta Question, I've always had trouble with this one [打印本页] 作者: bodhisattva 时间: 2013-4-14 19:55 标题: Delta Question, I've always had trouble with this one
(you have a long position that is delta hedged by selling calls)
As the option delta moves further away from zero (as opposed to moving closer to zero) the number options necessary to maintain the hedge
1) increases?
2) decreases?作者: bbtomato 时间: 2013-4-14 19:56
As delta moves further away from zero, what happens? It’s getting closer to 1, right? (delta is always between 0 and 1 for calls remember)..
And what does delta tell you? It tells you how many shares you need per short call. So 1 / delta tells you how many calls you need per share.
So if delta is getting closer and closer to 1, then 1 / delta is also getting closer and closer to 1.
But remember for small delta, you have 1 / delta being large so the number of calls needs is decreasing.作者: Roflnadal 时间: 2013-4-14 19:56
#options needed for hedge = # stock shares/delta
if delta moves away from zero as in going from 0 to 1, the delta increases. 100 options necessary for 1000 shares and delta of 10. if delta increase to 15, then # options needed is 1000/15 which yields less than 100 options so i would guess decrease?作者: Chuckrox8 时间: 2013-4-14 19:57
I am so sorry. I wrote down the wrong information.
The actual question is
Which option strategy would be the most effective in hedging the risk of BIC stock?
A) Add put options to the portfolio as the option delta moves closer to zero?
B) Add put options to the portfolio as the option delta moves further from zero?作者: stalkey 时间: 2013-4-14 19:58
justinkc really helped with that answer, too
don’t try to conceptualize it, just do the math
