Portfolio-level Delta Hedging Algorithmic Trading Portfolio-level Delta Hedging

Critical Thinking Easy meter Convergence

With a portfolio of related securities Delta Hedging With a portfolio of related securities

Delta of a Portfolio What if I have more than one type of derivative with the same underlier (a “family”) in my portfolio? Delta hedging still applies... and it can be made even better!

Delta of a Position Dposition = qtyi * di

Delta of a Family Portfolio Dfamily = S qtyi * di

Delta Neutral Portfolio Perfectly hedged portfolio family has Family Delta = 0 This means that the sum of the values of the positions in the family does not change as the stock price changes.

Delta of a Portfolio of Related Securities Assume that the underlier is Goog Dfamily = S qtyi * di 1000 * 0.53 – 2000 * 0.46 – 500 * (-0.51) = -135 -135 + 135 = 0 long call short call (different strike) short put Initial Delta Delta that is necessary to make the portfolio delta neutral “Family” Delta for the portfolio

Key Portfolio Decisions I need +135 delta on my GOOG portfolio, how do I get it? Buy stocks Buy calls (delta > 0) Sell puts (delta < 0) SellShort puts Pros/cons: cash, horizon, price, tc, stability….

Delta for the portfolio of GOOGLE positions: +2,420 Example Pros/cons: cash, horizon, price, tc, stability…

Portfolio-level Delta hedging Dfamily = S qtyi * di 0 = S qtyi * di + qtyx * dx qtyx = - (S qtyi * di ) / dx

In summary - to determine a recommendation, consider: 1) date (hedging today?) 2) size of portfolio delta imbalance (do we need to hedge?) 3) available cash (do we have the money?) 4) closeness to max margins (can we borrow more?) 5) delta of security (how many?) 6) price of security and transaction cost (can we afford it?) 7) effect on AP portfolio and CAccount (grows/shrinks?)

What Is New In Technology? WINIT What Is New In Technology?

You do the talking Name, Major Things you like about the class Things that can be improved Attitude towards the tournament?