Delta Analysis

Discussion in 'Options' started by stoic, Oct 22, 2010.

  1. stoic


    See the attached file for comment
  2. spindr0


    John Bollinger would be proud of you.
  3. stoic


    That's it!!!

    As some readers may know, I'm not a big believer in the usefulness of the "Greeks". Each time I comment on the short comings of the BSM Theoretical model I get a overabundance of debates to the contrary. Repliers tout the merits of negative and positive delta, IV and Gamma scalping. How every floor trader "Knows" all the Greeks for every position on their book.

    So I post a detailed analysis showing the Calculated Delta vs. True delta... and get zip.
  4. I doubt you took into account the effect of skew and surface when calculating delta.

    Also, every market maker knows their big positions, but primarily they will be aggregated. Your book might have tens of thousands of trades, you're not going to know or even want to know the risk on every individual one because you generally don't hedge individual options (unless we're talking about hedging exotic structures with vanillas, etc).
  5. stoic


    And that means exacly what...???
  6. What precisely did you expect to get? Applause? Protestations of undying love and devotion? Scores of screaming groupies?

    Personally, I had absolutely no idea what you meant to convey with your post. Moreover, it was a complete mystery to me what you might have been referring to as "true delta". Hence no comment.
  7. The real greeks of an option aren't just those from BS, and two of the biggest reasons are the BS (hah) assumption of constant volatility and no volatility smile/skew. These can greatly affect your greeks. For constant volatility, read up on Local Volatility vs Stochastic Volatility (Vol is treated as a stochastic process), generally a mixing factor is used. As for volatility skew/smile, this is particularly important with strikes away from atm. Read up on sticky delta and sticky strike to get a background.
  8. stoic


    I expected none of the above. What I did expect was at least an attempt at intelligent responses.

    As for what was referred to as "true delta" was simply this.
    If the model stated the delta as 0.50 and in the real world the move was .80 then the True delta was 0.80

    I was hoping that my post would spark some intellectual debate amongst aficionados of the BSM model and the application of the Greeks in trading.

    Apparently I was mistaken. In the future I will post only when I want to solicit snide remarks from trader WANA-BEs
  9. ok, ok - maybe I should just stay away from this thread, but what the hey. You do know that delta changes, right? So, if the delta of an option is listed at .5 and say the stock is 50 and the option is a 50 strike call and the option is currently at 2.00 - if the stock goes to 52, the delta shows that the option should go to 3.00, right? (.5*2)=1+2=3. However, what if the stock goes to 60? Will the option go to (.5*10)=2+5=7.00? Of course not. The option will go to at least 10+ and the delta is now 1.0. That doesn't mean the delta was wrong - delta changes - I think there is even a greek that tells us the change of the delta. Delta is delta at that moment - any change can change it.

    Probably most people are too busy for too much of that, especially when you don't make it clear what you are really looking for.

    I don't think I'm a trader wanna-be, but I had no reason to comment on your post originally, sorry. I have my strategy well in hand and use BS in a way that it helps me out - to each his own.

    BTW - have you ever heard of the saying "those who can't - teach!"? I'm just saying someone who is taking big $$$$ from the markets might not be so interested in coming here and spending hours teaching people as people who are wanna-be traders actually will. I can type fast so I don't mind, but I bet there are people making big money here who really have no interest in helping others (especially when they can get so much grief sometimes from people who don't understand things).

  10. stoic


    I would of thought that it would be apparent on the charts that the calulated delta was on a daily basis as well as the true delta. (duh).
    #10     Oct 26, 2010