How to Delta Hedge an Options Portfolio

Jul 13, 2022

By The Small Exchange

Overview

Delta hedging is a popular risk management strategy whereby the options trader offsets deltas accumulated by market movement with shares, options, or futures. Katie and Frank show you how to delta hedge an options portfolio that might be gaining or losing deltas with three separate strategies. First, Katie gives you the dynamics on how deltas flow in and out of your portfolio in a long or short options trade, and then she talks about rolling the other side of the options strategy to mitigate those deltas.

Finally, Frank highlights a few ways to use static deltas in the underlying market S&P 500 ETF (SPY) shares or Small Equities 400 (SMES) futures to hedge deltas midway through an options trade.

Contents

0:05 How to Delta Hedge an Options Portfolio

0:30 Whether You're Buying or Selling Options, Deltas will Accumulate

3:05 An Example with a Delta-Neutral Strangle in SPY

6:35 Managing Deltas by Rolling your Put Option

7:25 Managing Deltas by Buying Shares

8:00 Managing Deltas by Buying Small Futures

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