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Apo


Total Posts: 3
Joined: Apr 2017
 
Posted: 2017-04-24 05:42
Hello folks, Recently I'm working on strategy which require short options to get the theta value. I'm a newbee in option world so this question may seems stupid for you, apology ahead.

If I want delta-neutral for a option portfolio, such as a short strangle, should I use the underlying or other options to adjust the delta? which is better? The first thing come my mind is using option is better, because if I short more option to banlance my delta, I can also gain more theta(if I choose correctly).

I read "Volatility Trading" by Euan Sinclair, however I'm still confused about this issue. Also I'm still confused about "Soft delta" and "hard delta".

Another question is if I want to dynamic hedge delta according to Zakamouline delta band, is it possible and logical to use option to do that?

Any reply would be appreciated! Thanks for you all.

Baltazar


Total Posts: 1760
Joined: Jul 2004
 
Posted: 2017-04-24 08:41
Sure you can use options to delta hedge.
Your hedge will bring delta, gamma, theta, vega, rho...
If that's what you need/want, go with options.
If you just need deltas, underlying is better.

Plus for dynamic hedging, calculate the cost of trading your hedge (will you cross the spread?, how often?)
You could even use synthetic instead of underlying, trading option position that comes mostly with delta but I doubt it will be cheaper than straight underlying. Might depend on the market.

Qui fait le malin tombe dans le ravin

Apo


Total Posts: 3
Joined: Apr 2017
 
Posted: 2017-04-24 09:17
Thank you Baltazar, I think before I choose option or underlying to hedge my delta, I should think about whether I want my vega,theta,gamma changed by the hedge, this is another trade off between risk and profit. Thank you very much.

Apo


Total Posts: 3
Joined: Apr 2017
 
Posted: 2017-04-24 09:18
Thank you Baltazar, I think before I choose option or underlying to hedge my delta, I should think about whether I want my vega,theta,gamma changed by the hedge, this is another trade off between risk and profit. Thank you very much.
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