If we assume all Black-Scholes assumptions hold including flat volatility and continuous-time movements, for someone selling options and delta-hedge, does the option moneyness choice matter at all? It seems to me in a typical textbook delta-hedge example, it doesn't matter if one sells a 95 call, 100, or 108 call.
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Basic questions on Black-Scholes
- Thread starter blueraincap
- Start date
If we assume all Black-Scholes assumptions hold including flat volatility and continuous-time movements, for someone selling options and delta-hedge, does the option moneyness choice matter at all? It seems to me in a typical textbook delta-hedge example, it doesn't matter if one sells a 95 call, 100, or 108 call.
no. Expected value is all the same.
If you are right you have a major advantage when entering a trade.Black and Sholes is wrong ...
There is volatility smirk ...
doesn’t prove black scholes is wrong.
no. Expected value is all the same.
I meant, that you are right. The expected value of all the strikes is the same and you are indifferent to which strike you trade.
If, as you mentioned, the original BS assumptions hold then your continuous time delta hedging is just trading a replicating portfolio in which it does not matter which strike you choose.
If we assume all Black-Scholes assumptions hold including flat volatility and continuous-time movements, for someone selling options and delta-hedge, does the option moneyness choice matter at all? It seems to me in a typical textbook delta-hedge example, it doesn't matter if one sells a 95 call, 100, or 108 call.
agreed. given the assumptions it doesn't matter. prior to black monday, I think that was the caseIf we assume all Black-Scholes assumptions hold including flat volatility and continuous-time movements, for someone selling options and delta-hedge, does the option moneyness choice matter at all? It seems to me in a typical textbook delta-hedge example, it doesn't matter if one sells a 95 call, 100, or 108 call.