Forums > Basics > “a straddle will be equal to two calls delta neutral or two puts delta neutral”?

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 athos Total Posts: 2 Joined: Jul 2014
 Posted: 2017-03-16 16:08 I'm reading Nassim Taleb's book "Dynamic Hedging", on page 22 he says:"Consequently, a straddle will be qual to two calls delta neutral or two puts delta neutral (of the same strike). Assume that the forward delta of a put is 30%,"Straddle = 2P + .6F = 2(C-F) + .6F = 2C - 2F + .6F = 2C - 1.4F"I really couldn't understand this, according to wiki straddle page "A straddle involves buying a call and put with same strike price and expiration date", so one has: Straddle=P+C.In Taleb's example, he's assuming C=0.3F and P=−0.7, soStraddle=P+C=−0.7F+0.3F=0.4FThis doesn't tally with his equation Straddle=2P+.6F=2(C−F)+.6F=2C−2F+.6F=2C−1.4F. What's the catch? C'est par la logique qu'on démontre, c'est par l'intuition qu'on invente.
 TakeItAndRun Total Posts: 90 Joined: Apr 2010
 Posted: 2017-03-17 12:01 To fully understand your question, the text before 'Consequently' would have helped. So what follows is purely speculative.I guess it could be a general definition of a delta-neutral straddle: a delta-neutral straddle may consist of two delta-neutral options (same strike, same expiry).Hence Straddle = 2P +.6F (delta of straddle = 0) = etc...In your case P+C with delta(C) = 0.3 and delta(P) = -0.7 is not a delta-neutral straddle.
 tbretagn Total Posts: 248 Joined: Oct 2004
 Posted: 2017-03-17 15:08 Taleb is literally playing with put call parity. A put is a call plus forward. In the second example he says to assume the put delta is 30% (not 70% as in the previous example) Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne
 dVega/dRho Total Posts: 5 Joined: Oct 2015