Am I an idiot or does Delta Hedge only “hedge” your positin if there is an uptick and assuming the stock doens’t fall by more than the premium you get for selling the call options? How is that a good strategy? You don’t win anything due to stock appreciation because you shorted the options, but you are still exposed on the downside? And where do the premiums fall into this - schweser didn’t account for them at all.
delta hedging is dynamic and thus u constantly need to rebalance due to changes in underlying asset…further u only sacrifice some of the uptick in the asset not all n protect urself gainst the fall by the amount of the premium …i agreeits not a very good strategy as it assumes norm pricing and no shocks …this played a part in the 1980s stock crash i believe
Yes, I understand the whole rebalancing issue. But this seems like a stupid strategy to me unless you are 100% convinced the stock price will stay the same OR increase less than the amount you net amount you collect via premiums. DUH??? Why are we getting tested on this?! Please also “teach” me how to do other terrible trading strategies that can make my portfolio value < 0.
hahahahaha …well it works pretty well if underlying asset vol is small …not so good if it unexpectedly increases …hmmmm u can think that in that case the calls that uhave sold were priced too cheap
It’s all about Gamma. Be Gamma long and you’ll profit.
wangta01 Wrote: ------------------------------------------------------- > Yes, I understand the whole rebalancing issue. > > But this seems like a stupid strategy to me unless > you are 100% convinced the stock price will stay > the same OR increase less than the amount you net > amount you collect via premiums. > > DUH??? Why are we getting tested on this?! > Please also “teach” me how to do other terrible > trading strategies that can make my portfolio > value < 0. You are being tested on this because it is one of the most fundamental issues in hedging a position. You are not being “taught” this as a trading strategy, because it is not a trading strategy. It is a HEDGING strategy.
wyantjs Wrote: ------------------------------------------------------- > wangta01 Wrote: > -------------------------------------------------- > ----- > > Yes, I understand the whole rebalancing issue. > > > > > But this seems like a stupid strategy to me > unless > > you are 100% convinced the stock price will > stay > > the same OR increase less than the amount you > net > > amount you collect via premiums. > > > > DUH??? Why are we getting tested on this?! > > Please also “teach” me how to do other terrible > > trading strategies that can make my portfolio > > value < 0. > > You are being tested on this because it is one of > the most fundamental issues in hedging a position. > You are not being “taught” this as a trading > strategy, because it is not a trading strategy. > It is a HEDGING strategy. Thank you…but what is the real hedge? If your stock value goes UP, you don’t get ANYTHING. If your stock value goes DOWN, you get KILLED (lose Stock loss AND Premiums). The only way you gain in this HEDGING stragey is if the stock price goes up a tiny amount - so you can make money on the premiums from selling the options. This is nonsense hedging stragegy.
What is it about a hedging strategy that you don’t get? You are not in it to gain anything. You are in it to protect against a certain risk. Bank sells call option to client and has risk associated with soaring stock price -> bank takes long position in underlying -> if underlying begins to plummet, long position is liquidated -> if a rebound happens, long position is reinstated. Hence, traders rebalance a position to dynamically hedge a risk. Before you label something as nonsense, you should make sure that you clearly understand the process, which you obviously don’t.
wyantjs Wrote: ------------------------------------------------------- > What is it about a hedging strategy that you don’t > get? You are not in it to gain anything. You are > in it to protect against a certain risk. Bank > sells call option to client and has risk > associated with soaring stock price -> bank takes > long position in underlying -> if underlying > begins to plummet, long position is liquidated -> > if a rebound happens, long position is reinstated. > Hence, traders rebalance a position to > dynamically hedge a risk. > > Before you label something as nonsense, you should > make sure that you clearly understand the process, > which you obviously don’t. If I sell a call option I don’t only buy the underlying 
Although being vega short in these markets isn’t the worst thing that can happen! Unfortunately you will also be Gamma short. Gamma short: Not the best you can have.
Agreed. Proper hedging is much more involved. I figured any deeper would just cause more confusion though.
wyantjs Wrote: ------------------------------------------------------- > What is it about a hedging strategy that you don’t > get? You are not in it to gain anything. You are > in it to protect against a certain risk. Bank > sells call option to client and has risk > associated with soaring stock price -> bank takes > long position in underlying -> if underlying > begins to plummet, long position is liquidated -> > if a rebound happens, long position is reinstated. > Hence, traders rebalance a position to > dynamically hedge a risk. > > Before you label something as nonsense, you should > make sure that you clearly understand the process, > which you obviously don’t. Wow, calm down buddy. Nice zinger in there - wasn’t trying to offend you or the whole hedging community. The depth at which we go into this concept isn’t worth even covering it in my opinion - take it a that, my opinion. Thank you for your input. Clearly you do understand it and I don’t - please forgive me the ignorant one (there are many things I don’t understand on the curriculum). Feel better?
wangta01 Wrote: ------------------------------------------------------- > wyantjs Wrote: > -------------------------------------------------- > ----- > > What is it about a hedging strategy that you > don’t > > get? You are not in it to gain anything. You > are > > in it to protect against a certain risk. Bank > > sells call option to client and has risk > > associated with soaring stock price -> bank > takes > > long position in underlying -> if underlying > > begins to plummet, long position is liquidated > -> > > if a rebound happens, long position is > reinstated. > > Hence, traders rebalance a position to > > dynamically hedge a risk. > > > > Before you label something as nonsense, you > should > > make sure that you clearly understand the > process, > > which you obviously don’t. > > Wow, calm down buddy. Nice zinger in there - > wasn’t trying to offend you or the whole hedging > community. The depth at which we go into this > concept isn’t worth even covering it in my opinion > - take it a that, my opinion. > > Thank you for your input. Clearly you do > understand it and I don’t - please forgive me the > ignorant one (there are many things I don’t > understand on the curriculum). Feel better? wyantjs yiou going to let this guy talk to you like that???
pimpineasy Wrote: > wyantjs yiou going to let this guy talk to you > like that??? Hahaha, guess we all need some entertainment around here.
Ha…yeah I guess I will let him since he admitted his ignorance in the matter. My point was not to try to put you down, but to simply say that it is a bit frustrating to come on these boards with the intention of helping people, and constantly having to weed through bogus posts from underinformed people speaking as if they are fully informed. I will be the first to say that many topics covered in the cirriculum are total shit, but there are some concepts that I believe to be essential to understanding finance. It may be that you never have to delta hedge a position, but understanding what it is, the motive behind it, and the process of enacting it can be invaluable. In short, if you don’t understand something then you should ask about it instead of blindly labelling it “nonsense”. Something that seems like nonsense to you may very well be another man’s career.