Keeping track of deltas

[tehewo]

hi all, which services or site you use to keep track deltas in your portfolio? i am looking into delta neutral and trying to stir my big +ve now to neutral.

tried the cboe.com and optionetics.com and also ib analytics (which only provide info during real time and during market is running)....

none found in yahoo portforlio too....

you guys track your delta? btw, i am new too, in option trading.

if this question has been asked, please direct me to the treat and delete this tread. thanks.

 

[Robertral]

hi all, which services or site you use to keep track deltas in your portfolio? i am looking into delta neutral and trying to stir my big +ve now to neutral.

tried the cboe.com and optionetics.com and also ib analytics (which only provide info during real time and during market is running)....

none found in yahoo portforlio too....

you guys track your delta? btw, i am new too, in option trading.

if this question has been asked, please direct me to the treat and delete this tread. thanks.

Use the BS to work out ur deltas....easy in excel......
otherwise you won't find a service provider that will give you that information as delta is a function of YOUR volatility!!!!!!
Do a google search for black Scholes delta........

Remember that you are going to incur transaction costs (spread + comm) when delta hedging and that will eat into your profits!!! you trading vol then?

 

[Profitaker]

..... delta is a function of YOUR volatility!!!!!!

No, the delta is a function of the option implied volatility. Nothing to do with any user input.

 

[Robertral]

x

 

[Robertral]

Sorry you are incorrect!!!! any volatility you insert into your option pricing model is your own volatility, be it an implied vol from the market, your vol estimate for that forward (i.e a weighted vol estimate). Profittake I suggest you read the book by Natenberg - Option Volatility and Pricing, it will probably help you stop losing money from your option trading.
Implied vol is the volatility implied from the options in the market. How does that vol get into the market???? Also if an option is worth 10 and I put a 20 offer in (ther eis nothing on the bid and I'm the only person on the offer) and it gets lifted, then IV for that option would be tottaly incorrect and your Delta (being a function of IV) is incorrect. For you, bad news (using IV to calc deltas), but for me and other intelligent option traders that wouldn't really bother me as my vol model would see that!!
Profittaker I can see you have only traded(played/read option books) from home! try doing a vol trade with a counterparty, where you both have to agree on a delta so you can exhange deltas (I think the delat is 43% and the counterparty thinks it's 44% [i.e we are using differnet vols])
Also what happens if I'm using a differnt options pricing model to you? say Heston, then my Implied vol is going to be differnt to yours and other traders.

 

[Profitaker]

Oh boy, where to start ! Or should I bother ?

any volatility you insert into your option pricing model is your own volatility.

If you’re looking at option ThVal, then yes. But we aren’t ! We are looking at options already trading in the market place. Those options will have an implied volatility, and it’s from this Vol that all greeks (including Delta) are be derived.

How would you hedge a delta ? Are you saying you’d just pluck a vol out of thin air and use that fig to calculate and then hedge a delta ?

The rest of the post is pure pische and needs no further comment. Sorry.

 

[Robertral]

Oh boy, where to start ! Or should I bother ?



If you’re looking at option ThVal, then yes. But we aren’t ! We are looking at options already trading in the market place. Those options will have an implied volatility, and it’s from this Vol that all greeks (including Delta) are be derived.

How would you hedge a delta ? Are you saying you’d just pluck a vol out of thin air and use that fig to calculate and then hedge a delta ?

The rest of the post is pure pische and needs no further comment. Sorry.

Profittaker, your post is common for the non-professional trader. Why is the rest of my post rubbish? Is it because you can't come back with a decent response?
If the option really worth 10 (lets say its OTM) and there is no price in the market for the option. I place a an offer at 20 and assume it gets lifted, then the implid vol (from the price of 20) will give you a hegding error from your greeks as now your delta and gamma will be too high; hence you will over hedge using that IV. Any comments regarding the above?

IV is just the generally market concenous what what the vol will be over the option maturity, if I think the vol is wrong then I will use my own and hegde from that.

Answer this: How do I perform arbitrage from mispriced options in the market?

 

[Profitaker]

Profittaker, your post is common for the non-professional trader.

You surmise far too much, but be my guest.

Why is the rest of my post rubbish? Is it because you can't come back with a decent response?

It’s because I have neither the time nor inclination to respond to pische. I / we are trying to help our friend trade DN, and I’m happy to reply to anything relevant to that.

If the option really worth 10 (lets say its OTM) and there is no price in the market for the option. I place a an offer at 20 and assume it gets lifted, then the implid vol (from the price of 20) will give you a hegding error from your greeks as now your delta and gamma will be too high; hence you will over hedge using that IV. Any comments regarding the above?

You’re describing the problems associated with an illiquid market and I agree it’s a problem. In the example you describe I’d personally use my exit spot price to calc and then hedge a delta. For example, if I was short calls, I’d use the option ask price (my exit price) to calulcate IV/Delta. If the options to be hedged were OTM, then another way would be to use the bid/ask on the other options which would be ITM and therefore more liquid. In my Calls example, use the Puts bid/ask/mid or whatever to run the calcs – Calls and Puts of the same strike trade at the same vol.

But as I said, you're discussing a liquidity problem, not which Vol to use.

IV is just the generally market concenous what what the vol will be over the option maturity, if I think the vol is wrong then I will use my own and hegde from that.

Good luck to you ! Personally, I want to know how the option will change in value for any given change in the underlying and for that I use the market IV prevailing at the time. Use any other vol at your peril !

Answer this: How do I perform arbitrage from mispriced options in the market?

I don’t know, how do you ?

p.s. away till Tuesday.

 

[bulldozer]

Quote:
Originally Posted by Robertral
Answer this: How do I perform arbitrage from mispriced options in the market?
I don’t know, how do you ?
======================================================================

Easy ! when u know how.

Bull
You dont need to be a genius to have some brains! BUT you need some brains to be a genius

 

[Profitaker]

Got sidetracked tehewo. Have a look at ivolatility. Don't use it myself but I've heard only good things. They can monitor delta, IV and all sorts real-time.

http://www.ivolatility.com/rtservice.j

Robertral - Disappointed you've not answered the question that I couldn't - How do you perform arbitrage from mispriced options in the market?

Some other time maybe ?

 

[bulldozer]

Got sidetracked tehewo. Have a look at ivolatility. Don't use it myself but I've heard only good things. They can monitor delta, IV and all sorts real-time.

http://www.ivolatility.com/rtservice.j

Robertral - Disappointed you've not answered the question that I couldn't - How do you perform arbitrage from mispriced options in the market?

Some other time maybe ?

====================================================================

Prof,

Some things take yrs to learn [arbitrage]. This info, some people will not sell for love or money I certainly would'nt ! Cause it will end up in someones book /siminar etc.

Robertral is smarter than you fink! and if hes as smart as i think he is? he would not put the reply on the boards.

Bull
God makes the wise SIMPLE and the simple WISE :cheesy:

 

[Profitaker]

Robertral is smarter than you fink! and if hes as smart as i think he is? he would not put the reply on the boards.

I think he will. Why (?), because nobody would ask a question and then not be prepared to give the correct answer.

Would they ?

 

[Robertral]

Profittaker - some of us are actually busy at times, I will answer the Q later when I'm not so busy...

 

[bulldozer]

I think he will. Why (?), because nobody would ask a question and then not be prepared to give the correct answer.

Would they ?

================================================================

Prof,
Some smart people ask that type of question to see how smart others are ? also to see what respons comes back? and not to prove that they are smarter. [he already knows he's smarter]
He knows the answer [of course] but it does not mean hes going to share it and place it on these boards, would you?

Bull
Let your edge be your hedge and let your hedge be your edge too!

 

[bulldozer]

Prof,

Heres a couple of questions for yah mate:

1. Does a big 1000 + contracts SHORT Strangler player wait until IV goes in his favour before he opens positions? [300-400 pts OTM on footsie European style index Options]

2. How does he hedge his large SHORT positions. Or does he only hedge one leg?

Take your time before making a reply and you are not obliged to reply either.

Bull
Milk the THETA and STRANGLE the MM

 

[Profitaker]

1. The size shouldn't make any difference to the principle. Nobody would open unless they thought (rightly or wrongly) that IV was "in their favour", be it opening long or short options.

2. Depends where he saw the risk(s). Delta could be hedged dynamically with the spot, whereas gamma and vega risk must be hedged statically with options. Vague question.

 

[bulldozer]

1. The size shouldn't make any difference to the principle. Nobody would open unless they thought (rightly or wrongly) that IV was "in their favour", be it opening long or short options.

2. Depends where he saw the risk(s). Delta could be hedged dynamically with the spot, whereas gamma and vega risk must be hedged statically with options. Vague question.

===============================================================
Prof,
1, So yur reply to question one is wait until you are sure that IV is in yur favour, on a 300-400 OTM short strangle?
If you wait 1-4weeks for IV to come in yur favour you would have LOST out on the THETA acting in yur favour ! [time value errosion. ] And dont forget they are on large contracts! The waiting game for IV is NOT in favour for the SHORT Strangler The SHORT Strangler is a THETA lover and thus profits from time errosion on both SIDES of shorts positions!

2. Where does a SHORT Strangler wiv 300-400 OTM positions see's the risk? He cant see the risks being on BOTH side of the short Strangle can he? Lets say the positions are also 3-5 mths out. So how do u hedge?

Bull
Time is money! :cheesy: and THETA = money IV = Chance

 

[bulldozer]

Prof,
Your quote "The size shouldn't make any difference to the principle"
=====================================================================

Try telling that to a Short Strangler wiv large amount of contracts on footsie index!!

Bull

 

[Profitaker]

===============================================================
Prof,
1, So yur reply to question one is wait until you are sure that IV is in yur favour, on a 300-400 OTM short strangle?

No Bulldozer, I didn't say you'd "wait" for IV to come in your favour. I said you wouldn't open if you thought it wasn't.

If you wait 1-4weeks for IV to come in yur favour you would have LOST out on the THETA acting in yur favour !

The flip side of Theta is gamma, and whether you'd want to take on gamma risk would be a function of IV on offer (see above). In any event, DOTM (like 300-400 points) would have negligible theta, and IV can easily move 200 bps or more within a matter of days (sometimes less).

The SHORT Strangler is a THETA lover and thus profits from time errosion on both SIDES of shorts positions!

Theta is not an edge. If you don't take in enough premium (IV) for the risks being undertaken you'll lose your shirt PDQ.

2. Where does a SHORT Strangler wiv 300-400 OTM positions see's the risk? He cant see the risks being on BOTH side of the short Strangle can he? Lets say the positions are also 3-5 mths out. So how do u hedge?

300-400 OTM and 5 months out would (initially) have significant vega risk which he may want to hedge with options. As time to exp decreases the predominant risk would be delta/gamma. Hedging delta with the spot would make the final P&L path dependant, gamma can only be hedged with options.

Hope that helps.

 

[bulldozer]

Prof,

I never said "THETA" was a hedge but it could be viewed as EDGE for positions on Short strangle.

A Short strangle 3-5 mths out on OTM positions for both sides is a Theta strategy taking prems and all it needs is a hedge to protect position.

A 30-100 pts move on footsie can take 2-6 wks to happen it will hardly effect the prems price. But a 2-6 weeks time erosion on Strangle can yield handsome profits on lrg contracts size.

A larger move on index will b taken care by hedge and a heavy marg payment in place.

Bull