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Delta hedge

This topic has 2 replies, 2 voices, and was last updated 12 years ago by John Moffat.

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November 27, 2012 at 10:45 am #55812
dazhong0703
Member
- Topics: 44
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Assuming contract size = 1000, for every 1000 shares, how many call options need to sell in order to protect fall in share price, 1000/delta or 1/delta?
Thank you
November 27, 2012 at 3:03 pm #108868
dazhong0703
Member
- Topics: 44
- Replies: 130
Since delta hedge is for selling call option (we ignore buying put option first), if later the share price really drops, so does call option value, our counter party should lapse the call option. Does that mean we only gain from the option premium, pls?
November 27, 2012 at 5:29 pm #108869
John Moffat
Keymaster
- Topics: 57
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For your first question, if you are asked how many options then it is 1000/delta. If you are asked how many contracts then it is 1/delta (rounded to the nearest contract).
For your second question, the answer is yes 🙂
(although you could always buy put options)
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