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Portfolio-level Delta Hedging

Portfolio-level Delta Hedging. Stefano Grazioli. Critical Thinking. Overall good Easy meter. The Hedge Tournament. Questions? Teams on Collab. Delta Hedging. With a portfolio of related securities. Delta of a Portfolio. We have seen the 1:1 approach to Delta Hedging

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Portfolio-level Delta Hedging

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  1. Portfolio-levelDelta Hedging Stefano Grazioli

  2. Critical Thinking • Overall good • Easy meter

  3. The Hedge Tournament • Questions? • Teams on Collab

  4. Delta Hedging With a portfolio of related securities

  5. Delta of a Portfolio • We have seen the 1:1 approach to Delta Hedging • What if I have more than one type of derivative with the same underlier in my portfolio? • Delta hedging still applies... and it can be made even better!

  6. Delta of a Family Portfolio Dportfolio = Sqtyi * di

  7. Delta Neutral Portfolio • Perfectly hedged portfolio has Delta = 0 • This means that the sum of the values of the positions that relate to a specific stock (long, short, call, put) does not change as the stock price changes.

  8. Assume that the underlier is Google Dportfolio = Sqtyi * di 1000 * 0.53 – 2000 * 0.46 – 500 * (-0.51) = -135 -135 + 135 = 0 long call short call (different strike) Delta for the portfolio short put Initial Delta Delta that is necessary to makethe portfolio delta neutral Delta of a Portfolio of Related Securities

  9. Key Portfolio Decision • I need +135 delta on my GOOG portfolio, how do I get it? • Buy stocks • Buy calls (delta > 0) • Sell puts (delta < 0) • SellShort puts • Pros/cons: cash, horizon, cost, tc, stability

  10. Example Delta for the portfolio of GOOGLE positions:+2,420

  11. WINIT What Is NewIn Technology?

  12. Homework Spartan Trader

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