Futures lack delta, too. But that doesn't stop people like Ansbacher from proclaiming deltra neutrality by shorting puts and futures.
futures carry all times a 100 delta. that's why he claims delta neutrality. however gamma produces deltas and that's the potential problem with that kind of setups. in addition, you're also vulnerable to vega risks. both of these, gamma and vega, have to be hedged with options, while delta might be hedged with the future or the underlying.
There are a few problems in trying to hedge far out of the money puts on the SnP500. for the purposes of this question lets assume you trade options on the SPX index and use the future as the hedge, since thatâs whatâs used at the hedge in the real world. The problem with the puts is that because of the volatility skew you run into a situation where the puts values will vastly outperform their delta on bigger down side moves. Implied volatility naturally goes up as the index falls and not only does the negative gamma from the short put position kick in it will exceed its calculated delta due to that implied volatility pop. There is also another problem youâll encounter, if the market experiences the kinds of moves weâve seen over the last month the markets in the puts will be VERY wide and difficult to trade, even if youâre a small retail customer. So this begs the question why not sell a spread rather then a naked put. In straight equity options thatâs usually always a better idea then the naked put but its not really viable option in SPX options. There are so many strikes that the delta of each strike is very similar to the surrounding strikes and thus the values are similar. The bigger issue is that when the values are so close for the surrounding strikes and the markets are fairly wide the spread prices are tiny. Of course you could spread with much further out strikes but then it becomes and issue risk reward. Is it worth selling a 30 dollar wide spread for a buck over 30 days? Thatâs roughly a 2% wide spread. If you delta hedge purely with the futures youâre subject to big risks on the upside and worse youâre likely to be âwhip sawedâ by being forced to buy back futures in ralliesâ and sell them when the markets fall. Itâs no easy task on the call side either for a different set of reasons. Options on the SnP are really geared towards institutions.
I think that manager can market anything he likes, but making it profitable is another story. There is a lot of action on the SPX puts vs VIX call strategies these days but selling puts and managing them with futures is essentially trading the futures and trying to make a little extra by taking in some premium on the puts. The options on the cash should be essentially the same as the options on the future in terms of volatility skew and the issues I mentioned. There are some subtle differences.