Delta Hedging at different vol levels

SillyWilly said:
Whoops silly me. If you look at the line I took, do you see a major flaw here or is that the standard path? I closed the trade because one of my option legs were almost at 1 delta. I believe it was the right decision to close it off because my gamma was approaching near 0. Thoughts?
More...

Well I wouldn't have sold it yet, but just have gotten flat in delta... I would have kept it I think, till end of the day.... with more than half the day to go, SPX can easily go up 2% again. If not, just let it expire.

Did you lose a bit on the spread as well? Call was probably 0.00?
 
SillyWilly said:
IB was quoting me 8.9 on the call and 9.4 on the put. Sorry for some reason didn't see the rest of your post. Thank you for posting. I appreciate the time taken.
More...

That's the reason you should do your own maths... don't rely on some platform's calculations. Likely your deltas were not given correctly either.

If you do stuff like this, you need to do all yourself. Or at least do a quick review of what the platform says.
 
SillyWilly said:
I can not see where the edge is in hedging EOD rather than x amount of delta.
More...

There's not really an edge perse... just what you prefer I guess.

If you hedge more often, you might miss out on profits since you are basically not letting them run.
If you don't hedge often, you might miss out on profits due to not scalping...

We used to let it run a bit until there was a clear change in direction. And EOD usually mostly delta flat. But the last week of expiration you need to be more in charge... you will be fighting the theta decay a lot harder. Also, you should ask yourself... do you go delta flat EOD? Or do you hedge for delta flat on what your position is the next morning? Because overnight your greeks change quite a lot, especially in the last week. But that's another discussion I guess...

IMO the market dictates what you should do... but I guess that can be a bit more stressful... meh... it's what we do ;)
 
JackRab said:
There's not really an edge perse... just what you prefer I guess.

If you hedge more often, you might miss out on profits since you are basically not letting them run.
If you don't hedge often, you might miss out on profits due to not scalping...

We used to let it run a bit until there was a clear change in direction. And EOD usually mostly delta flat. But the last week of expiration you need to be more in charge... you will be fighting the theta decay a lot harder. Also, you should ask yourself... do you go delta flat EOD? Or do you hedge for delta flat on what your position is the next morning? Because overnight your greeks change quite a lot, especially in the last week. But that's another discussion I guess...

IMO the market dictates what you should do... but I guess that can be a bit more stressful... meh... it's what we do ;)
More...

I have a trade on right now that you could be interested in. I bought LYB straddle right before the close on friday with the idea to scalp into earnings. It has earnings out this Friday and vol usually gets into the range of 83%-95% the day before earnings. I will do what you are saying and trade EOD to flatten my deltas, unless there is a move above the implied daily move. I am starting an R script to calculate the greeks so I won't have to rely on IB! You've been very helpful, I will keep you posted on how the trade goes.
 
Also as you have mentioned in another post, I will not be using the implied vol to calculate my greeks (implied vol overstates the move into earnings) but rather use GARCH. If I make money on this trade (small because I am still testing the gamma scalping waters) I owe you a beer.
 
SillyWilly said:
I have a trade on right now that you could be interested in. I bought LYB straddle right before the close on friday with the idea to scalp into earnings. It has earnings out this Friday and vol usually gets into the range of 83%-95% the day before earnings. I will do what you are saying and trade EOD to flatten my deltas, unless there is a move above the implied daily move. I am starting an R script to calculate the greeks so I won't have to rely on IB! You've been very helpful, I will keep you posted on how the trade goes.
More...

Seems like a good idea... if IV will go to about 90 on Thursday, the straddle will more or less keep it's value into earnings. That would mean that even if you hedge/scalp too often, you wouldn't lose much anyway. Near free gamma....
 
If I think vol is cheap within 1 month to expiration does it makes sense to buy a strangle rather than a straddle? Reasons being a strangle will have a higher dvega/dvol, will be cheaper because of ddelta/dtime (wings are cheap near expiration). Then just delta hedge accordingly
 
You must log in or register to reply here.
Back
Top