1. Portfolio-level Delta Hedging
Algorithmic Trading
Portfolio-level Delta Hedging

2. Critical Thinking
Easy meter
Convergence

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

4. 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!

5. Delta of a Position
Dposition = qtyi * di

6. Delta of a Family Portfolio
Dfamily = S qtyi * di

7. 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.

8. 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
= 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

9. 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….

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

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

12. 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?)

13. What Is New In Technology?
WINIT
What Is New In Technology?

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