abhishreshthaa
Abhijeet S
:SugarwareZ-236::SugarwareZ-236::SugarwareZ-236: OPTION GREEKS
Delta Hedging
The delta measures how exposed the portfolio is to small movements in the underlying asset price.
If the portfolio delta is zero, the portfolio is neither locally long nor short and is said to be delta-neutral.
Example
A individual has sold for Rs 42,000 a European call option on 10,000 shares of a non dividend paying stock
S = 95, X = 100, r = 6%, s = 30%,
T = 0.25 (3 months)
The Black-Scholes value of the option is Rs42,000
How does the individual hedge its risk?
Naked & Covered Positions
Naked position
Take no action
Covered position
Buy 10,000 shares today
Delta Hedging
Objective:
make the position immune to small changes in the price of the underlying asset in the next small interval of time
Delta Hedging
The delta measures how exposed the portfolio is to small movements in the underlying asset price.
If the portfolio delta is zero, the portfolio is neither locally long nor short and is said to be delta-neutral.
Example
A individual has sold for Rs 42,000 a European call option on 10,000 shares of a non dividend paying stock
S = 95, X = 100, r = 6%, s = 30%,
T = 0.25 (3 months)
The Black-Scholes value of the option is Rs42,000
How does the individual hedge its risk?
Naked & Covered Positions
Naked position
Take no action
Covered position
Buy 10,000 shares today
Delta Hedging
Objective:
make the position immune to small changes in the price of the underlying asset in the next small interval of time