Delta for OTM options

Discussion in 'Options' started by kapw7, Dec 10, 2012.

  1. kapw7


    One of the strategies I am experimenting is trading skew. One of the basic mehods is supposed to be a risk reversal for example. Any suggestions for different strategies are welcome but my main question is about delta hedging.

    How do you calculate delta for OTM options?

    I have some general knowledge of the problem, of different models and I have access to some very basic Excel spreadsheets that utilise Heston, SABR, SVI. Obviously I don't want to start spending endless time to try to learn something that is beyond my needs and my abilities

    Ideally I would like something that captures the dynamics of the whole surface but for practical purposes I would like to use something that I can uderstand and work with, that is fairly accurate but don't care (or should I?) for accuracy that a market maker or an exotics trader needs - for example some sort of parametric model

    I am looking mainly in index/ETFs and shorter maturity 1M to 3M.
  2. sgfee123


    Have you considered pulling Delta directly from your Broker’s trading appliction into Excel? Many brokers have interfaces that allow this. The link below connects to an Elite Trader thread which shows two methods for getting Delta from the Thinkorswim (by TDAmeritrade) trading platform. Check out the VBA code at the beginning of the thread and take a look at the Excel-DDE-V4.xls spreadsheet near the end of the Thread:
  3. kapw7


    Useful spreadsheet. I don't use TOS but I guess they calc delta using the B-S formula. The problem is that it is not accurate for OTM options eg it doesn't adjust for correlation of volatility with spot movement.