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cdcaveman

Registered: Aug 2011
Posts: 3518

07-29-12 08:35 AM

Quote from TskTsk:

When delta hedging I use 0.5*gamma*S^2 which gives loss per rehedge. Solve for risk tolerance. Sometimes I use 1sd move (dont remember exact formula) as rehedge points. I buy both options and underlyer to rehedge (it varies).

The primary concern when determining wheter a premium is good or not is 30-day forward IV compared to historical vol. Optimally the two graphs should be far apart. IMO. sure there are other ways to determine it. it depends what you're looking to proft of.

let me ask a few questions so i can get what your saying...
1.. "0.5*gamma*S^2" whats S^2 is the * a multiplication sign?
is this an equation.. .50 times the gamma times stock squared? i mean i know i sound retarted but haha idk
2..."you buy options to hedge" like itm? say itm calls to hedge otm calls sold?
3.. 30-day foward IV..... is that a garch forcasting thing? or where are you getting a forward implied vol number from?
4.. what other ways are there to determine optimal times to sell premium and hedge?

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