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Hey Ryan, been a while....on my final run through the syllabus and realised my knowledge of Delta had reaaaallly Slipped....this is just what I needed haha..beautifuly put....about 2 weeks to go now for Level 3.
Can you explain what's the point of delta hedging in the first place? Why not take a more passive and directional view like most retail traders do and just go long on equities over the long term? I'm just curious as someone newly interested in finance and derivatives
When you sell a call, You will receive the option premium (suppose $300), you can earn this money without any loss if stock price stay under strike price. However, if prices go skyrocket, your max loss would be uncapped. In this case, you need to buy some stocks as hedge position to make sure you can earn the premium at maturity without bearing the risk of unlimited max loss. When longing on equities, you're betting the price will go up. When doing the delta hedging, You're trying to earn the 'Time value' in option premium. The Objective of two strategies is different.
Hey Ryan amazing explanation. just a quick question..in your example of dynamic hedging, as delta changes across different time periods (i.e week 1 & 2 where stock price fell) and you sold 6.4k + 5.8k stocks at a lower price. These are realized losses that the investor has to absorb right? The investor would NOT make back these losses through the delta hedge right?
Any losses in the short shares should be offset by the gains in the long calls and vice versa! (This assumes the hedge is perfect and the portfolio is delta neutral which we are assuming in this simplified example)
Hello Ryan thank you very much for your contributions! I am about to work as a credit risk analyst for an investment banking. According to you, this job experience could be valuable in the future for a job as a fixed income trader? Cheers from France
It is my pleasure Lova! In my opinion, that would be a great role to use as a stepping stone to become a fixed income trader. You would most likely learn the majority of the prerequisite knowledge required. Good luck with the new job!
Sir one question: delta 0.99 call sell $500 and 0.99 put sell $900 . If the market goes up 5% then price will change as per LTP of $500 5% and $900 5% ?
No perderias dinero cada vez que el precio baja? Basicamente comoras acciones si sube y vendes si baja (lo contrsrio a la logica). La prima recibida por el shot call comoensa ests cobertura?
Hola @tanoalcanoni, ¡gracias por tu pregunta! No hablo español, así que estoy usando una aplicación de traducción y algunos conceptos podrían no expresarse perfectamente. En la estrategia de delta hedging, el objetivo es reducir el riesgo ajustando continuamente la posición en acciones para compensar los cambios en el precio de la opción. No se trata de ganar dinero con los movimientos del mercado, sino de neutralizarlos. La prima recibida por la venta de la opción call (short call) puede ayudar a compensar cualquier pérdida en la cobertura, pero el éxito de esta estrategia depende de gestionar adecuadamente el equilibrio entre la opción y la posición en acciones para mantener la neutralidad delta.
🎓 Tutor With Me: 1-On-1 Video Call Sessions Available
► Join me for personalized finance tutoring tailored to your goals: ryanoconnellfinance.com/finance-tutoring/
Hey Ryan, been a while....on my final run through the syllabus and realised my knowledge of Delta had reaaaallly Slipped....this is just what I needed haha..beautifuly put....about 2 weeks to go now for Level 3.
Good luck! Hopefully this will be your last 2 weeks of studying for CFA ever. The freedom is really nice at the end. Keep pushing, you got this!
@@RyanOConnellCFA Fr fr…can’t imagine how amazing it’ll be to spend all my free time without worrying about a test lol…..Appreciate the support 🙌
Can you explain what's the point of delta hedging in the first place? Why not take a more passive and directional view like most retail traders do and just go long on equities over the long term? I'm just curious as someone newly interested in finance and derivatives
When you sell a call, You will receive the option premium (suppose $300), you can earn this money without any loss if stock price stay under strike price. However, if prices go skyrocket, your max loss would be uncapped. In this case, you need to buy some stocks as hedge position to make sure you can earn the premium at maturity without bearing the risk of unlimited max loss. When longing on equities, you're betting the price will go up. When doing the delta hedging, You're trying to earn the 'Time value' in option premium. The Objective of two strategies is different.
Hey Ryan amazing explanation. just a quick question..in your example of dynamic hedging, as delta changes across different time periods (i.e week 1 & 2 where stock price fell) and you sold 6.4k + 5.8k stocks at a lower price. These are realized losses that the investor has to absorb right? The investor would NOT make back these losses through the delta hedge right?
Any losses in the short shares should be offset by the gains in the long calls and vice versa! (This assumes the hedge is perfect and the portfolio is delta neutral which we are assuming in this simplified example)
Hello Ryan thank you very much for your contributions! I am about to work as a credit risk analyst for an investment banking. According to you, this job experience could be valuable in the future for a job as a fixed income trader? Cheers from France
It is my pleasure Lova! In my opinion, that would be a great role to use as a stepping stone to become a fixed income trader. You would most likely learn the majority of the prerequisite knowledge required. Good luck with the new job!
Sir one question: delta 0.99 call sell $500 and 0.99 put sell $900 . If the market goes up 5% then price will change as per LTP of $500 5% and $900 5% ?
This should be good for L3 derivatives..Thanks Ryan
Absolutely! It is my pleasure. Are you on Level 3 right now?
@@RyanOConnellCFA Yessir! Registered for August. At this point I just wanna get it over with, lost all the enthusiasm I had when doing L1 and L2 🤣.
@@pizzaandmeth4538 Please keep me updated on how it goes! I know that burnout feeling lol. Goodluck!
@@RyanOConnellCFA Will do Ryan..Pushing through 💪🏼.
@@pizzaandmeth4538 You got this!
Your mustache is giving good vibes
Haha thank you Ben!
But how much did you win with this?
Hedging is much less about "winning" and more about reducing the potential for loss
No perderias dinero cada vez que el precio baja? Basicamente comoras acciones si sube y vendes si baja (lo contrsrio a la logica). La prima recibida por el shot call comoensa ests cobertura?
Hola @tanoalcanoni, ¡gracias por tu pregunta! No hablo español, así que estoy usando una aplicación de traducción y algunos conceptos podrían no expresarse perfectamente. En la estrategia de delta hedging, el objetivo es reducir el riesgo ajustando continuamente la posición en acciones para compensar los cambios en el precio de la opción. No se trata de ganar dinero con los movimientos del mercado, sino de neutralizarlos. La prima recibida por la venta de la opción call (short call) puede ayudar a compensar cualquier pérdida en la cobertura, pero el éxito de esta estrategia depende de gestionar adecuadamente el equilibrio entre la opción y la posición en acciones para mantener la neutralidad delta.
@@RyanOConnellCFA Muchísimas gracias por tu respuesta! Voy a seguir viendo tus videos para aprender mejor toda la parte operativa. Saludos
¡Gracias a ti, @tanoalcanoni! Me alegra saber que los videos te son útiles. ¡Saludos!