Delta Hedge and Risk Free rate Delta, return, like

Howd

"Delta-hedged portfolio will earn a risk-free rate of return over time". The portfolio is like a covered call.

Is it due to time decay?

infinitybenzo

I would go with fairly often...but you are right...not very often.

ohai

Real Name: michele panzeri
Posts: 308
Date Registered: Friday, August 29, 2008 at 09:09AM

2008? Looks like you are the one who failed a level.

skycfa

jmac01 Wrote:
-------------------------------------------------------
> I am not asking a question. Simply stating what I
> believe the answer to be and asking if you agree
> (since you were incorrect). May be getting lost
> in translation - guessing English may not be your
> first language.
>
> And Level 2 was a breeze.


Yes I have heard that the 4th time you take level 2 it's a breeze. Your English must not be your first language because you obviously cannot understand the material. Go back and read level 2 books please.



Edited 1 time(s). Last edit at Tuesday, April 5, 2011 at 04:15PM by mik82.

mp3bu

jmac01 dont hurt him brother.

aidebaobao

I am not asking a question. Simply stating what I believe the answer to be and asking if you agree (since you were incorrect). May be getting lost in translation - guessing English may not be your first language.

And Level 2 was a breeze.

mcmc

deriv108 Wrote:
> Can the dealer sell out-of-the-money or
> in-the-money calls? Or Should they as the dealers?
> If yes, the delta of in-the-money call could
> increase over time.

Why not?
As you learned in level II, dealers need to dynamic hedging all the time when they do delta hedge (there are special softwares for that).

wake2000

"Yes they are. In a delta hedge, if the stock goes up by 1USD, the calls will go down by 1USD*delta (assuming the dealer is short). So overall the change in value of the portfolio is zero."

Delta is between 0 and 1. so, the delta must be 1 for the net change to be zero - meaning you are deep in the money. In that case, you may be delta neutral. right?

Analyze_This

What if the stock goes down and the call is out of the money.

ll11

The short calls are not completely covered in a delta-hedge.

Thanks for the explanation.