Delta hedging two options

[rejdi94]

Hello,

I'm from Poland, because sorry behind my english.
I want to protect strangle strategy. The protection covers 3000 stocks. Volume for the call option is 10 items, and put option 20 items.
Delta for the call option is 0,6198, put option -0,5591. Stock price during conclusion of the position - 162,5 $. Strike price call option (ITM) - 155$ and
put option 170$ (ITM). i need delta neutral for example above. Also, when delta call option up to 0,7521, put option down to 0.4012.
It is important for me, because i write thesis.

Greetings,
RK

 

[Nicole Seaman]

Hello,

I'm from Poland, because sorry behind my english.
I want to protect strangle strategy. The protection covers 3000 stocks. Volume for the call option is 10 items, and put option 20 items.
Delta for the call option is 0,6198, put option -0,5591. Stock price during conclusion of the position - 162,5 $. Strike price call option (ITM) - 155$ and
put option 170$ (ITM). i need delta neutral for example above. Also, when delta call option up to 0,7521, put option down to 0.4012.
It is important for me, because i write thesis.

Greetings,
RK

Hello @rejdi94

I'm sure others in the forum can help you, but I also wanted to make sure that you were aware of our search and tag features in the forum. Our forum has been active for over a decade so there is a great deal of information that would be very helpful to you. Our search and tag functions can help you to find the concepts quickly so you don't need to wait for an answer. These features are here: https://forum.bionicturtle.com/search/?type=post. I hope this is helpful!

Nicole

 

[rejdi94]

Can i make this example based on this presentation? - https://www.slideserve.com/axl/case-hedging-examples
As i have open positions it's after time more pay? I changed the parameters: Volume for the call option is 30 items, and put option 30 items. Price options it's for call option 7,35$, put option 5,6$. The share price grows to 165$. It is more in price, because price call option grows to 10,72$, put option falls to 3,07$. Share price - 160$, price call option falls to 5,21$, put option grows to 7,56$

I tried solve two ways:

Ways (1):

(30 x 7,35 x 100) + (30 x 5,60 x 100) = 22050 +16800 = 38850$

Share price grows to 165$: (30 x 10,72 x 100) + (30 x 3,07 x 100) = 32160 + 9210 = 41370
Gain: 41370 - 38850 = 2520$

Share price grows to 160$: (30 x 5,21 x 100) + (30 x 7,56 x 100) = 15630 + 22680 = 38310
Gain: 38850 - 38310 = -540$

Delta ratio: 0,6198/0,5591 = 1,1 (11 put option or 1 put option?)
Correct: 31 put option, 30 call option
or:
(30 x 0,6198 x 100) + (30 x -0,5581 x 100)?

Share price grows to 160$: (30 x 5,21 x 100) + (32 x 7,56 x 100) = 15630 + 23436 = 38310
Gain: 39006 - 38850 = 156$

Approaching to delta neutral. I know if confused, but the concept is good? Can the delta be traded?

Ways (2)

3000 x (165-155) - ((30 x 7,35 x 100) + (30 x 5,60 x 100))? - share price grows
3000 x (170 - 160) - ((30 x 7,35 x 100) + (30 x 5,60 x 100))? - share price falls


Nicole,
I was looking, but did not find my case . Sorry for language mistakes, logic mistakes and conceptual mistakes .

Greetings,
RK

 

[flex]

hi, @rejdi94
some explanation need for ('you strangle' exposure leg's sizes):

Hello,
...
The protection covers 3000 stocks. Volume for the call option is 10 items, and put option 20 items.
...
Greetings,
RK

1. are '10 & 20 items' the numbers of opion contracts by 100 underlying shares each?

 

[rejdi94]

Hi, @flex

One option contract it includes package 100 shares. 10 contracts call option for 1000 shares and 20 contracts put option for 2000 shares. Should it be 15/15, equally?

 

[flex]

Hi, @flex

Should it be 15/15, equally?

yes, 'pure' strangle implied minimum sizes mismatch (even as to minimize d/hedge). But there's more important, unlike you case, that options was OTM.
for 0,6198 & -0,5591 deltas (10cll + 20pt), to delta-neutral need +498 underlyying