The oh so important close

4 thoughts on “The oh so important close”

  1. “Delta hedging typically has relatively high short term Alpha, particularly in a trending market”
    can you expand on this not sure I am following you here.


    1. Let’s look at an example. If you are long calls as the stock price goes up the delay increase. Short calls the delta decrease as the stock rises. So in a dispersion book you are typically long the index option, short options on an optimized basket of the underlying securities to capture the difference between high single name vol and lower diversified index vol.

      So if we are long index calls and short calls in 20 underlying names – and then dollar data neutral, if the market is trending higher we become long more index delta and short less underlying delta…thus we need to hedge in the same direction on both sides. Essentially the book is dollar delta hedges, and gamma neutral but has massive 3rd deriv sensitivity that needs to be managed.


  2. ok I follow what you are saying thanks. I am interested in how you use the term “alpha” assuming you are market making. Maybe I am making too much out of it.


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