delta depreciation

Discussion in 'Options' started by saminny, Jun 19, 2010.

  1. saminny



    Delta of the option should decrease as we approach close to the expiration for ATM or near the money options. However, I am looking at the greeks for a stock (BP) on this site: It seems delta for Oct 16 options are higher than those of July 17 with the same strike. Can you explain why this is the case?

    Secondly, if I want to create a horizontal spread with delta neutral, how do I hedge delta if delta is different with different expirations at same strikes?

  2. Delta is effected by the underlying price, time uuntil expirration, and volatility. Most likely, the reason is because July options have a higher IV than OCt. Also, if the calls you're looking at a modestly ITM, that can also make Jul higher.

    To figure delta neutal. divide one delta bythe other to figure the hedge ratio.
  3. MTE


    Delta for ITM options approaches 1 (-1 for puts) as options approach expiration. Delta for OTM options approaches 0 as options approach expiration. Delta for ATM options stays fairly constant.

    Looking at BP options chains it all seems to be inline with what I described above.

    To delta hedge a horizontal spread you need to ratio it.
  4. saminny


    Thanks for the information. I misunderstood the charts. cheers.
  5. That is one of the mis-understandings people have about delta. It is not correct.
  6. MTE


    OK, show me it's not correct.
  7. stoic


    Delt analysis coming soon.

    I have been doing a very detailed delta analysis since May 14th on the July strikes.

    Will post the results (pdf) after expiration.
  8. saminny


    Please do. It will be very helpful.
  9. If delta of ATM is constant, what is the value of that constant?
  10. saminny


    #10     Jun 22, 2010