How do you calculate Delta Based Notional Value?

[deonyang]

for example WTI /CL is trading at $48.50.
48.50 x 1000 = $48500 notional value of 1 future
for a Call option of $53 strike and delta of 0.23, what is the delta based notional? How do i calculate it

 

[1245]

Why would you want to know? You just need to know how many futures your are delta long for hedging. Why is notional needed unless you are a hedger?

 

[deonyang]

Why would you want to know? You just need to know how many futures your are delta long for hedging. Why is notional needed unless you are a hedger?

because im trying to use /CL option theta to minor hedge long /HO crack spread
I want to know how much delta should i decide to short for 5 : 1 ratio

 

[1245]

Multiply the delta * the contract value above, $48,500*.23= $11,155. The strike price is not relevant for the calculation. As time passes, the delta will either go to 0 or 100 and adjust for you. Obviously the value will change every time the delta changes.

1245

 

[deonyang]

Multiply the delta * the contract value above, $48,500*.23= $11,155. The strike price is not relevant for the calculation. As time passes, the delta will either go to 0 or 100 and adjust for you. Obviously the value will change every time the delta changes.

1245

thanks you very much

 

[DirectMarketAccess]

Correct me if I am wrong... but an out of the money call option has zero notional value until it is in the money... Once its in the money, the notional value is the same as the underlying contract.

 

[Amalgam]

Correct me if I am wrong... but an out of the money call option has zero notional value until it is in the money... Once its in the money, the notional value is the same as the underlying contract.

It has no intrinsic value.

 

[1245]

DirectMarketAccess,

An OTM call has no intrinsic value as Amalgam has stated, but it has notional value. I would take the Delta of the call*the notional value of the underlying. The same is true with an ITM call.The OCC does this differently.

I can not find the OCC reference, so I have to quote Investopedia. They use the shares you can control. One OTM call has the same notional value as one ITM call or the underlying.


Equity Options
Shares of stock also involve notional values. Instead of the term "notional," it is coined as "nominal."

For example, buying stock option contracts would potentially give an investor more shares than he could control by purchasing shares directly. The notional value is the value of the investor can control rather than the value of he owns.

 

[OddTrader]

The notional value is the value of the investor can control rather than the value of he owns.

How about " The notional value is the value of the investor can control, or the maximum value of he owns potentially at expiration. "