FX Options straddle help pls!

N

Newbie17

Hi all,

I have a question regarding FX straddle that i was asked at an interview

Assuming you have a long EURGBP straddle strike at 78.31 notional EUR 4m

At spot=78.57, delta is 0
What is delta when spot= 78.29?

This was the interview question.

Q1. My first question now is why will spot=78.57 be 0?
I thought a straddle will only be delta neutral i.e. delta=0 when ATM? (which in this case is 78.31)

Q2. When spot is 78.29, the delta of the straddle should be moving towards -1 right? (As the put option becomes more ITM)
 
bollocks.

Q1. OP mentioned the option was struck at 78.31. Delta might be 0 at 78.57 because generally OTC options are priced off the forward price not spot and forward might have been at 78.31 when the option was priced at 0 delta.

Q2. Correct answer is delta will be non-zero and by how much it diverts from zero depends on the curvature and non-linear properties of the option in question.

mmt said:
Q1. Delta is zero because the strike of the straddle is 78.57.
Q2. Correct
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