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Portfolio-levelDelta Hedging
Stefano Grazioli
Critical Thinking Overall good
Easy meter
The Hedge Tournament Questions? Teams?
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t Delta HedgingWith a portfolio of related securities
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!
Delta of a Family Portfolio
Dportfolio = S qtyi * di
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.
Delta of a Portfolio of Related SecuritiesAssume that the underlier is Google
Dportfolio = S qtyi * di
1000 * 0.53 – 2000 * 0.46 – 500 * (-0.51) = -135
-135 + 135 = 0
long call short call (different strike)
short put
Initial Delta Delta that is necessary to makethe portfolio delta neutral
Delta for the portfolio
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
Exam
ple
Delta for the portfolio of GOOGLE positions:+2,420
Your Opinion Matters A couple of things that you have
learned from the class Is the class getting you to think on
your own What can be improved Attitude towards the HT
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t WINITWhat Is New
In Technology?
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t HomeworkSpartan Trader
