Combining Option Deltas to Calculate a Forward Hedge

Summary

The document presents a delta-hedging example involving a long call position and a short call position with different strikes. It states the dollar exposures and deltas, combines them to find the net position’s continuous delta, and proposes offsetting that exposure by selling a forward contract.

The author cannot reproduce the stated figures from the referenced reading and wonders whether the option prices are needed. The excerpt supplies a spot-price assumption, maturity, forward relationship, and individual deltas, but does not include a complete derivation or the option prices. It therefore illustrates how signed option deltas combine into a net exposure, while leaving unresolved how the source calculated the dollar positions or whether further inputs are required to reproduce them.

Key ideas

• A portfolio’s net delta combines the signed deltas of its long and short option positions.
• The example reports a net positive dollar delta and proposes a short forward position as a hedge.
• Reproducing the figures may require details beyond the stated deltas and position amounts.
• The excerpt does not provide a derivation of the option valuations or hedge sizing.

Tags

# Delta Hedging Example


# Delta Hedging Example












I was reading Dynamic Hedging by N. Taleb and in the chapter dedicated to the delta, there is this example of a trader position in options (one-month European call, flat yield curve, forward is equivalent to spot, spot price is 100 i guess) :

- He is long 1 million dollars of the 96 call (delta .824).

- He is short 1 million dollars of the 104 call (delta .198).

- His total continuous delta is long 624,000 dollars.

- He could hedge it by selling 624,000 dollars forward

Following by this table :

I didn't succeed to retrieve the same figure, I don't know if i missed something or we can't without the options prices.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.