Hi all, I have a question regarding FX straddle that i was asked at an interview Assuming you have a long EURGBP straddle strike at 78.31 notional EUR 4m At spot=78.57, delta is 0 What is delta when spot= 78.29? This was the interview question. Q1. My first question now is why will spot=78.57 be 0? I thought a straddle will only be delta neutral i.e. delta=0 when ATM? (which in this case is 78.31) Q2. When spot is 78.29, the delta of the straddle should be moving towards -1 right? (As the put option becomes more ITM)
bollocks. Q1. OP mentioned the option was struck at 78.31. Delta might be 0 at 78.57 because generally OTC options are priced off the forward price not spot and forward might have been at 78.31 when the option was priced at 0 delta. Q2. Correct answer is delta will be non-zero and by how much it diverts from zero depends on the curvature and non-linear properties of the option in question.