Talk about delta neutral hedging of spot + options and stable income
Delta neutral hedging is a typical neutral hedging model in option hedging.
Go long spot in the forward direction and sell out-of-the-money call options in the reverse direction. The position ratio is not 1:1, but is configured in such a way that the positive and negative delta values add up to zero.
for example:
The spot delta value is 1, and the delta values of the first, third, and fifth out-of-the-money call options are 0.4, 0.2, and 0.1 respectively. So how to form delta neutrality?
You can buy one spot spot and sell one out-of-the-money call option in the first level, two in the third level, and two in the fifth level.
The delta value exactly offsets the positive and negative values and returns to zero.
If the spot rise does not exceed the out-of-the-money strike price, no adjustment is required.
If the spot price falls, you can close out the third- and fifth-tier options, continue to open positions on new out-of-the-money options, and regain delta neutrality.
If the spot price rises sharply, you need to increase the spot position and rebalance it with the sold call options that have been opened before. If the option delta values after the surge are 0.6, 0.4, and 0.2, then the sum is equal to 1.8, and the delta value has a difference of 0.8, and 0.8 lots of spot stock are required.
To sum up, delta neutral hedging purely harvests time value and earns the premium of out-of-the-money options. Use the delta value-neutral structure of spot and options to achieve small rises and falls without affecting returns, and dynamically adjust large rises and falls to re-establish balance.
Therefore, by making weekly and monthly options to widen the exercise price gap, the delta neutral strategy is more robust. The winning rate is higher. The back-tested annualized rate of return is over 100%, which is very suitable for players who hoard coins to reduce costs and increase profits.
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