delta neutral hedging

[sprithiani]

Guys, I can give you some help with delta neutral strategies. But first I want to know, if you know how to calculate delta and other greeks for a particular option.

Regards,
Siddharth

 

[sumitalwar]

Guys, I can give you some help with delta neutral strategies. But first I want to know, if you know how to calculate delta and other greeks for a particular option.

Regards,
Siddharth

hello siddharth ,
i have downloaded an option value calculator where greeks are calculated ,
i have primary ( very limited ) practical knowledge but have some understanding of greeks .
applying in market to get the advantage and making money .
i will be glad if u can teach me just that
thnx

sumit bhatia

 

[sprithiani]

Hi Sumit,

I read this strategy on one website. Do not remember the name of website. I believe it is smartfinance.in

It consists of

Short Nifty Fut 1 lot (delta = -1).
Buy ATM Call 1 lot (delta =0.5).
Sell ATM Put (Next month) 1 lot (delta =0.5).

Opposite positions can also be taken.

You can square off the position within a week or two.

Think about this strategy, we can discuss more about this later.

Regards,
Siddharth



I would suggest, to paper trade first. Personally I trade only naked futures but I believe this is the simplest strategy, for a starter. We can discuss some more once you are ok with these.

 

[manager_kakar]

Sir how to trade essar oil for april 2012

 

[HARIVEL]

i have downloaded the bible of option strategies and trading options to win ( wiley )
3)
get rich with options .
would like to tell you that i have not started reading any book .
thnx

sumit bhatia

Can u post link of the book

 

[sumitalwar]

the books the bible of options and getting rich with options are available on files tube or 4 shared .

 

[ananths]

For checking the option greek values download optionsoracle software.. i had it few months back...it will show you the delta for each strike price.

About delta hedging..simple example is below
ITM strike price will have delta 1 (ITM = IntheMoney)
OTM strike price will have 0.5 (OTM = Outof theMoney)

So if you buy one ITM call/put, hedge it with selling two OTM call/put.
1 - (0.5+0.5) = 0 (delta neutral)

Note: deep out of the money will have less delta ..so you will have to hedge proportionately.

thanks

 

[markmark]

Dear Myamit
First of all, you need to have a small prgram to calculate the delta of the options. For example, at the money call has delta 0.5, very deep in the money call delta 1. Remember underlying or future always has delta 1.
If you want to sell two at the money calls, total delta =-2*0.5=-1. In order to hedge this position, you buy one future. The portfolio delta = -2*0.5+1=0, => fully hedge at this moment.
Hope this can help you.

markmark

 

[DanPickUp]

Dear Myamit
First of all, you need to have a small prgram to calculate the delta of the options. For example, at the money call has delta 0.5, very deep in the money call delta 1. Remember underlying or future always has delta 1.
If you want to sell two at the money calls, total delta =-2*0.5=-1. In order to hedge this position, you buy one future. The portfolio delta = -2*0.5+1=0, => fully hedge at this moment.
Hope this can help you.

markmark

So where is my profit? If I am one delta long ( Two atm options ) and one delta short ( one future ) or vice versa, how do I make any profit?

If market moves up, the one delta in option makes money as much as the one short delta in future loses money.

Hmm.

 

[markmark]

Do you know what the exact meaning of delta neutral. Yes delta=0. The example I showed above was to tell people how delta neutral can be done. To do delta neutral is to avoild the portfolio losing money in a small market move, exactly as you said, no lost no gain in direction. To make the above strategy, is to gain money from theta for overnight or expecting the implied volatility drops to gain money from vega. Please remember money can be made from options not only from direction.

I can give information up to this point as I have been told there is a limit of information which is free in india. However, I am happy to share my knowledge with you guys if you are polite.