Delta Neutral not so neutral ?

[Tums]

I heard a bunch of DN guys got hammered in the past weeks -- it turns out their DN positions were not so neutral afterall.

Have you heard of similar stories?

 

[MTE]

Delta neutral positions get long/short deltas when the market moves as Gamma starts manufacturing Deltas.
So in order to be immune to market moves you need to be both Delta and Gamma neutral.

 

[cnms2]

You can go even further and neutralize delta, gamma and vega (view demo on automatic position hedging). It's a matter of solving a system of equations. But, as you minimize your risk you'll reduce your potential for profit too. We all know there's no free lunch.

 

[riskarb]

Quote from Tums:

I heard a bunch of DN guys got hammered in the past weeks -- it turns out their DN positions were not so neutral afterall.

Have you heard of similar stories?

What "guys"? Anyway, short gamma lost, long gamma won. Forget deltas.

 

[chiguy]

can you say frown curve...

p&l and their facial expressions match...:eek:

 

[yip1997]

The delta is not telling you the true story.

I have a similar situation, and like to get some explanation or implication out of it.

I have a option portfolio of VLO consists of naked puts and naked calls.

Yesterday the position delta was around -40, gamma was -35 and theta was 12.

Today VLO is up around 1 point, the delta, gamma and theta changes to -78, -37 and 12.6.

It makes sense if you look at these numbers.

However, when i looked at my daily p&l, my portfolio made $40 today. How can it happen?

Since delta, gamma were -ve, when VLO goes up, my p&l should drop. Anyone can explain it?

 

[riskarb]

Quote from yip1997:

However, when i looked at my daily p&l, my portfolio made $40 today. How can it happen?

Since delta, gamma were -ve, when VLO goes up, my p&l should drop. Anyone can explain it?

Yeah, remedial options 99. Vols dropped and front-running weekend decay [expressed by implied vol drop]

 

[yip1997]

Quote from riskarb:

Yeah, remedial options 99. Vols dropped and front-running weekend decay [expressed by implied vol drop]

Does it happen often? Can we predict it and use it as part of our trading strategy?

 

[riskarb]

Quote from yip1997:

Does it happen often? Can we predict it and use it as part of our trading strategy?

Sure, the participants plot Monday's ThVals on Friday. Typically not first thing in the morning, but today is emp Friday.

 

[yip1997]

Quote from riskarb:

Sure, the participants plot Monday's ThVals on Friday. Typically not first thing in the morning, but today is emp Friday.

Cool! Thanks a lot. Since I never used vega in my trading decision, just want to confirm my understanding here.

Now I have OIH with position vega = -400, does it mean i will make 400 with 1% drop in implied volatility?