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Delta hedge

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Delta hedge

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.
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  • October 9, 2020 at 4:56 pm #587842
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    Sir when we are doing delta hedge using the formula no.of option calls to sell= no.of shares held/N(d1) and if delta changes continuously either due to high gamma or frequent changes in the spot price of the underlying then, generally/strictly what is changed? Physical deliveries of shares owned are added or subtracted or that remains untouched and no.of calls to sell changes?

    Many thanks!

    October 10, 2020 at 12:17 pm #588520
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    As far as the purchaser of the options is concerned, it is the number of options what would have to change.

    (However, as I do explain in my lectures, in practice it is the writer of the options who will use delta hedges and they will have to change the number of shares.)

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