Delta Hedging a Long Call with a Short Call

Summary

The document asks how to offset the delta of a long USD/SGD call by shorting another call rather than trading spot. It gives an example of a one-million-dollar call near the strike, whose delta is described as approximately positive 0.5, and asks how a short call with twice the notional changes the hedge.

No answer or hedge calculation is provided, so the question remains unresolved. The example points to the need to account for both options’ deltas and notionals when sizing an offset; delta depends on factors such as moneyness and market conditions, so the stated approximation alone is not enough to determine a complete hedge.

Key ideas

• The question compares hedging an option with spot against hedging it with another option.
• The example gives an approximate positive 0.5 delta for an at-the-money call.
• A short call’s notional and delta both affect its contribution to the net position.
• The document does not provide a hedge calculation or discuss how the hedge changes as market conditions move.

Tags

# Delta hedge a long option using a short option


# Delta hedge a long option using a short option












If I long a call option of 1 mio USD/SGD for example, I understand that at strike price (ATM), delta is approximately +0.5.

To approximately hedge this delta, I also understand we can short 0.5 mio of the underlying USD/SGD spot.

What I don't understand is how is the delta hedged when we short a call option of 2 mio USD/SGD instead?

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