Dynamic option delta hedge (FRM T4-14)

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[arvindmathur]

This is such a clear explanation and illustration! Superbly explained!

[ripon]

A million thanks for such great content free of cost :D

[joshjung]

Thank you so much for the useful Exactly what I needed to understand dynamic hedging

[SuperDangerousMouse]

Can you offer ideas on optimal delta-hedging? For example, above, Hull decides that we are going to hedge every fixed amount of time (1 week) until expiration?
Should we hedge every week? every 1 dollar? or every 1% change in delta? In theory, it should average out in the long run, right?
What do people do in practice? When we're short options, how do we minimize negative-scalping?
Say for example, I decided to hedge every 1% change in delta... I start off flat (delta-neutral). Now my position is long .0.25% delta... I do nothing. Later, I'm long 0.50%, should I sell a unit? or wait until I reach 1.00%.
Do people lean toward short delta in equities and positive in commodities?
Thanks, and all your videos (that I've seen) are great.

[savagemp]

Thanks, great content and knowledge shared, I couldn't find any1 nor any blog on this

[giggt]

Can you please share the sheet? The link says it was deleted. I’m unable to reproduce certain Inputs

[nononnomonohjghdgdshrsrhsjgd]

and what is the point in selling a call option at all? If the premium is appr. as much as the costs of hedging, what is the point to make a delta hedge with short call?

[johnpalma]

It sounds too me like the market maker is simply loaning out the options and hedging in an attempt to keep the premium when the options expire, wether they expire in ITM or OUT, am i on the right track or of base? Thanks

[olivermohr]

Is it OK to keep purchased volatility constant when calculating delta hedge, if I use a different volatility for the underlying asset random walk?

[matts]

I have had to watch this video more than once to grasp what is actually happening. This works well for European options, but how to deal with American style options because if it is in the money, you might find yourself having sold a call option at 50 strike and now the spot is trading much higher and you incur a loss. I know American options trade much higher because of these early exercise benefit. But my question to you is how would a market maker hedge out their risk with an American style option? Thanks! and great video

[mangao]

Do market makers rebalance their book every week or everyday? many thanks

[mztech]

This is amazing. And thanks for the excel model.

[tutumumu]

Assuming you sell a call(short) and at the same time you delta hedge it with stock. if the stock price drop say significantly, do you keep the premium at expiration or will the hedge offset the premium and you end up with 0 impact ?

[bpradel]

How did we obtain the cumulative cost of $263, 000?

[cristag.a]

Honestly, best content for the FRM. Thanks so so much!!!! :D

[RobertJewkes]

Does The pv of 263 work out to be 240 using risk free rate of 5% ?

[AcademaxPaperHelp]

Hi
From what distribution do you draw the share price in each period (49, 48.12 etc. )?
What are its parameters?
And how does the standard deviation (20%)coincide?
Thank you

[mina-xmpc]

Actually I would to ask about the profit of writer of the call options who did all of this, what actually they gain by doing all this process? I can understand that probably they gain from the premium but at the end they have 263, 000 cumulative costs?

[canyoubudget]

Can someone please show me the discounting from the 263k to 240k in 20 weeks at 5%? I'm struggling to get down to 240k in that timeframe and cannot find the Hull textbook.

[bmwman]

Ok so looking at this it doesn’t make sense to Delta hedge bcos am taking in $240, 000 (when I wrote the options) and it’s costing me $263, 000 (at end of week 20), so loss of $23, 000. Correct? Delta hedge not worth it??