accounting for options value

Discussion in 'Options' started by clarodina, Jan 8, 2011.

  1. delta not calculated from actual stk and option price
    than why would so many people use delta to determine how many contracts to hedge? isn't p n l is from actual stk and options price? why use theory delta which is not from really directly related to stk and option price?
     
    #11     Jan 12, 2011
  2. MTE

    MTE

    Delta tells you the change in option price if the stock price changes by $1. There is no time frame attached to it.
     
    #12     Jan 12, 2011
  3. MTE

    MTE

    Yes, delta is used to determine the hedge ratio, but since factors other than the stock price affect the option price, you also need to take into account other greeks. Delta hedging is not a set and forget method, you need to constantly rebalance the hedge to remain delta neutral.
     
    #13     Jan 12, 2011
  4. delta is a lagging value that is delta of 0.25 today does not implied tomorrow option price would decrease 0.25 should the stk price decrease one dollar?
     
    #14     Jan 12, 2011
  5. Buy a book.
     
    #15     Jan 12, 2011
  6. MTE

    MTE

    Ditto.
     
    #16     Jan 12, 2011