Delta drift of a hedged ITM call near expiry
Question
You own a European call with strike on a stock at , its delta is , and you have hedged so the position's total delta is zero. The option expires in hours. If the stock price is unchanged two hours from now, approximately what will your position's delta be? Give two decimals.
Short answer
About . The call is in the money, so with the stock still at its delta heads to by expiry, a rise of over four hours. Treating that decay as roughly linear over such a short window, half has accrued after two hours, leaving the hedged book long about delta.
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Open the worked solutionLessons behind this question
- Greeks and Numerical Sensitivities
- Taylor and Maclaurin Series
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
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