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accounting for options value
- Thread starter clarodina
- Start date
Quote from clarodina:
today the delta value is 0.25. does this implies that tomorrow option price would decrease 0.25 with the stk price decrease 1 dollar? what is asking is today delta value reflect how much option price change tomorrow?
Delta tells you the change in option price if the stock price changes by $1. There is no time frame attached to it.
Quote from clarodina:
delta not calculated from actual stk and option price
than why would so many people use delta to determine how many contracts to hedge? isn't p n l is from actual stk and options price? why use theory delta which is not from really directly related to stk and option price?
Yes, delta is used to determine the hedge ratio, but since factors other than the stock price affect the option price, you also need to take into account other greeks. Delta hedging is not a set and forget method, you need to constantly rebalance the hedge to remain delta neutral.