Continous hedging as a rachet device to lock-in profits

[cvds16]

it's too late to chat with ignorant people who think they know something without having knowledge of some basic facts and are too lazy to read a book ...

 

[botpro]

it's too late to chat with ignorant people who think they know something without having knowledge of some basic facts and are too lazy to read a book ...

I think I can say the same about some people...

 

[cvds16]

yes, everybody is wrong and you are right .... I have heard this tune before ... problem is nobody believes you ... hope you get that Noble-prize too ROFL

 

[botpro]

yes, everybody is wrong and you are right .... I have heard this tune before ... problem is nobody believes you ... hope you get that Noble-prize too ROFL

FYI: you at least twice wrote it wrong: it is "Nobel", not "Noble"

Here's the other posting of you where you have it wrong as well:

yes, it's zero ... that's what the whole options theory is about: you try to artificially recreate an option ... market makers use it to hedge there exposure when they buy or sell options ... Black, Merton and Scholes won the Noble prize for it ...

 

[blueplayer]

Now, let's also take selling puts and buying puts into the game:

Let's say
  CallDelta=0.55
  PutDelta =-0.45  (ie. the complement of CallDelta, but with negative sign)

Call_buying  --> sell CallDelta, ie. short 55 shares of the stock
Call_selling --> buy  CallDelta, ie. long  55 shares
Put_buying   --> sell PutDelta,  ie. short 45 shares (?)
Put_selling  --> buy  PutDelta,  ie. long  45 shares (?)

I think the above one is the textbook definition of delta hedging.
IMO it's not correct, because the directions don't make sense:
  Call_buying and Put_buying should be different in direction of the stock, but they are the same!
Same with selling:
  Call_selling and Put_selling should be different in direction of the stock, but they are the same!

So, the textbook definition of hedging, and what most of you have learned about hedging, is IMO probably wrong...

There is indeed an error in what you descibe the correct sequence is:

Buy 1 Call, sell delta Shares.
Buy 1 Put, *BUY* delta shares.
Sell 1 Call, buy delta shares.
Sell 1 Put, *sell* delta shares.

Those are the correct hedges if you actually wish to remain delta neutral.

 

[cvds16]

are you 15 or something ? For the record I got over 15 books on options theory and I read them all more than once ... keep ploughing away at your so called papers ...

 

[cvds16]

There is indeed an error in what you descibe the correct sequence is:

Buy 1 Call, sell delta Shares.
Buy 1 Put, *BUY* delta shares.
Sell 1 Call, buy delta shares.
Sell 1 Put, *sell* delta shares.

Those are the correct hedges if you actually wish to remain delta neutral.

no this is not true either: what he wrote is correct ... these are the initial hedges to put in ... however to REMAIN delta neutral you need gamma which will change the delta dynamically ... but that's the fact he is oblivious off

 

[botpro]

There is indeed an error in what you descibe the correct sequence is:

Buy 1 Call, sell delta Shares.
Buy 1 Put, *BUY* delta shares.
Sell 1 Call, buy delta shares.
Sell 1 Put, *sell* delta shares.

Those are the correct hedges if you actually wish to remain delta neutral.

Thanks for the corrections! This can explain some of the confusions I had!...

 

[botpro]

no this is not true either: what he wrote is correct ... these are the initial hedges to put in ... however to REMAIN delta neutral you need gamma which will change the delta dynamically ... but that's the fact he is oblivious off

Oh, boyz, come on, which one of the tables is the correct one? I'm now totally confused...

 

[cvds16]

no this is not true either: what he wrote is correct ... these are the initial hedges to put in ... however to REMAIN delta neutral you need gamma which will change the delta dynamically ... but that's the fact he is oblivious off

oops sorry, I wrote too quickly the correction was right ...