Delta Neutral Organization

Discussion in 'Options' started by Andy_Trade, Oct 25, 2007.

  1. spindr0

    spindr0

    Andy,

    Just a follow up to the question that we both asked previously. For long straddles (which I'm dabbling with and adjusting with stock), in terms of delta, from everything that I've looked at, it's not at how much delta you adjust but when you adjust.

    There's no magic delta number to adjust at. Ignoring IV change, delta neutral profit comes from price change and reversal. The ideal place to adjust is when the underlying peaks or troughs. Now if I can only figure that out, I'm golden :)

    If you adjust early, before the reversal, the adjustment diminishes the ongoing option gain. If you adjust late, after the reversal, you give up some of the ITM option gain.

    This is all in terms of underlying price and delta. IV change (the other big P&L factor) and time decay are being omitted to simplify the example's answer.
     
    #31     Nov 11, 2007
  2. spindr0,

    You're on the right track. You're also finding out that other critical variables need to be correctly solved also to get this thing to work consistently. Now you understand from my previous post why it's not as easy as it looks. Unfortunately, many of the answers that you're seeking are NOT found in books, seminars, videos ...etc. All the best in your quest for true knowledge.
     
    #32     Nov 11, 2007