Delta of 50
- Thread starter Herkfsu
- Start date
I've seen examples of UVXY not having delta of 50 at ATM, and I see it right now too, though not sure if it's due to high interest rate on borrowing UVXY when shorting.
Also:
https://www.elitetrader.com/et/threads/atm-options-delta-not-50.289795/
https://quant.stackexchange.com/que...a-of-slightly-bigger-than-0-5-and-not-0-5-exa
Also:
https://www.elitetrader.com/et/threads/atm-options-delta-not-50.289795/
https://quant.stackexchange.com/que...a-of-slightly-bigger-than-0-5-and-not-0-5-exa
You need to derive the synthetic to arrive at the forward price. The forward should reflect the RFR. If not, it's divs or HTB.
Wow...I get to answer this twice today.
No, only if they are European style exercise. American style exercise always have parity / early exercise as a backstop to value.
No-arbitrage sets the option chain prices--periods of extreme illiquidity notwithstanding--ATM American style must have 50-delta. (This need not be constant, but the market will reconcile it in time).
You belief is right. As the vol goes higher, ATMF delta goes towards the call. It's pretty intuitive if you take it to the volatility to the infinite limit (*) - a stock price can go to infinity but can only fall to zero, so call delta should dominate.
* e.g. a world where all rulers are like our Supreme Leader
PS. I assume when you say "FORWARD" in all caps, you mean a forward price derived from a price of a European combo or an actual quoted futures/forward price
So what would cause a stock like TSLA to have a delta of 56 on a 90d ATM call? Risk free rate and high vol?
I just meant forward as opposed to spot price. Not sure what a european combo is, but I always thought equity forwards were priced using Rf and dividends. Is that not always the case?
Secret Santa wins.
In high vol products, especially noticeable in over 100 IV, ATM calls will have significantly higher delta than ATM puts.
Edit: for completeness sake, Secret Santa is correct also. the market will tend towards 50-delta....not necessarily achieve it.
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No, there is usually an ATM delta difference between call and put. This is true in front month as well as vs forward values in longer term expirations. Only in super low vol products (like SPX) will you see close to 50:50 atm p/c delta ratios.
The delta difference increases as vol increases.