Option replication and exotics journal
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I've seen you hedging your positions on DAX and forex and quite successfully so. I know your main concern is to hedge the delta of your option position, but you seem to do it "in big lumps", and not by gradually adding to your spot/future position. IOW, it looks like pretty "loose" delta hedging (which is understandable, as tight hedging comes at a cost), especially if you consider the speed at which these exotic options deltas change.
Now here's my question : at which point do you decide the delta on your option position is too important-IOW when do you decide to hedge? Have you got fixed rules, is it based on instinct... or are there other criteria (TA?)?
And when you do hedge, do you just trade the underlying in order to neutralize the delta of the whole position, or do you leave some directionnal bias?
I sold the 2mm spot at 1.8040 this AM. Pure blind-luck that we didn't trade above 1.8050 on spot to null the barrier. Still short the barrier call + long the barrier put. No Spot position. +$25k gain on spot.
I typically cover the spot-position prior to the barrier being reached, on the small chance that spot will revert before reaching the barrier. I'd rather be out of the spot and lose the incremental-gain, than be in spot and out of the barrier.
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