Answers
Can anyone show me the formula to calculate the hedging cost through put option?
The hedging cost is the cost of the option plus any commission paid on purchase, sale, or exercise.
Supposing I buy an Asian call option or buy an Asian put option, how would I hedge this long position? That is, what do i have to have in my portfolio to take the opposite short position artificially? Is this even possible?
I'm wondering about an average price (not strike) Asian option. I can't seem to find anything online, and this is for a paper i have to write for my financial math class.
Thanks,
CD
I haven't done the math on it but I think this would be the theory.
It's very similar to typical American options. On an American option if you are long the call (put), you offset the long (short) position by shorting (buying) the underlying stock. The amount you go short (long) is determined by the delta as calculated by your options model. There would be no difference in the Asian option. I would just think the delta on the Asian is initially much lower than that of the American/European to start with. Over time because of the averaging feature, you can get more and more confident (or less and less) that the option will be in (out) of the money.
An example will illustrate:
Assume you have an Asian option with strike = $100 and an American option with the same strike. They both expire on the last day of the month. Assume 29 days pass and the price of the stock is $110 every day. The delta of the Asian is very close to 1 because it is almost certainly going to be in the money because we have averaged $110 every day. For the American, it's is a lot less certain because it could suddenly collaspe and go out of the money.
Both are based on leverage. So whats the main difference between options and futures?
dear Qw Q,
1. buying an option means buying a right to buy or sell the underlying assets.
2. buying a future means buying an obligation to buy or sell the underlying assets.
i hope my answers would help.
What would be the best way to hedge a short call option position?
There are a number of choices one has to hedge a short call option.
A perfect hedge (at expiration) would of course be to buy 100 shares of the underlying equity.
A more dynamic hedge would be to calculate the delta of the call option and then hedge it with the required number of shares to make that delta neutral. For help with this try this spreadsheet below I designed a few years ago.
http://tools.financialhub.info/positionc alculator.xls
There are also more complicated choices, but these are the basic ones that come to my mind.
hi,
I am new to stock option trading. my question is when ppl say you can hedge of buying a stock and buying a put option( so if stock price go down you can recover the loss by price gain in put option ) or vice versa.. but stock prices and option premium dont move $ to $..
say for example, If I buy Microsoft @ $20 , and buy $20- $25 put option..if prices of stock went down to $18 , put option wont gain $2 ..so how do you protect yourself ? is there any ratio, like, for every 100 shares, you buy 2 contract(200 shares) put option or anything like that.. plz let me know
Hedging by purchasing a protective put is simple; it's a little like buying insurance. The put contract limits how far the value of that position can fall. If the stock price falls below the strike price of the put, the value of the put increases to make up for it. So the value of your overall investment cannot fall below the strike price minus whatever option premium you paid.
Remember that the option premium has two parts: the intrinsic value, and the time value. When the put is in the money, the intrinsic value is the difference between the strike price and the price of the underlying stock; under these circumstances, the intrinsic value does in fact move $1 for every dollar that the stock price moves. The time value of an option depends on the volatility of the stock and how long you have until expiration.
In my opinion, protective puts should be used sparingly. They really won't help you make money, but will help limit losses for the duration of the contract.
Obama Says No Rush on Afghanistan. There Should Be.
It was the worst day for American forces in Afghanistan in four years yesterday, with 14 lives lost, all in helicopter crashes.
Speaking during a visit to Naval Air Station Jacksonville on the same day, the president said: “While I will never hesitate to use force to protect the American people or our vital interests, I also promise you this — and this is very important as we consider our next steps in Afghanistan: I will never rush the solemn decision of sending you into harm’s way. I won’t risk your lives unless it is absolutely necessary.”
His audience approved and for entirely understandable reasons. They are in uniform and may have to deal with the practical consequences when “armchair generals” and civilian hawks sitting at home demand they be sent into action. But while it sounds considered and eminently reasonable, I’m not sure that the “no rush” approach on the next stage of this campaign does anyone - the U.S. military, America’s allies such as Britain or the Afghan people - much good.
White House Hedging Bets On Public Option In Health Bills - Kaiser ...
The Associated Crowd "The Corpse-like Auditorium is waiting for Congress to calm on a ultimate form be attracted to bill, even though President Barack Obama has a unconfused inclination in favor of at least one well-defined — the much-debated social option, advisers said. Obama, however, will not required that legislation embody a command-run indemnity arrangement intended to push down costs through tournament with sneaking insurers, they said." "As contrasted with, the Milky Quarter will let Congress drudgery out the details required to get something passed. 'There will be compromise. There will be legislation, and it will carry out our goals: help people who have guaranty get more protection, more accountableness for the guaranty business, ration people who don't have cover get bond they can be able, and lowering the total get of the system,' presidential consultant David Axelrod said" on ABC's This Week (Hurst, 10/19). The Associated Hurry/The Boston Planet in a surrogate romance reports that postpositive major confidante Valerie Jarrett said she thinks Obama believes the popular representation is still the "win out over practicable preference," but that he's not urgent it. Spotless As a gift chief of mace Rahm Emanuel made correspond to remarks saying it's not the defining air of haleness mindfulness reorganization (10/19). Meanwhile, The Try Byway someone's cup of tea Minute-book reports that "On Fox Scandal Sunday, Sen. Kent Conrad (D., N.D.) said he could stand a obvious option that doesn't tie reimbursement rates — what the oversight would pay haleness-keeping providers for procedures — to existing Medicare reimbursement rates. North Dakota has more low Medicare reimbursement rates." Conrad favors cooperatives (McKinnon, 10/18). Politico reports on Obama's weekly lecture: "President Barack Obama took what may be his hardest shots yet at the vigour guaranty enterprise, stating that while a condition-tribulation renovation bill is tight-fisted to stanza, opponents are frustrating to 'marshal their forces for one last against to lay the repute quo' and are match 'misleading and deceiving ads' — and suggested insurers' could bested their anti-custody freedom if they continued to infect the layout" (Henderson, 10/17). Ultimately, The Chicago Tribune looks at Obama's top Cadaverous Establishment officials who are diligent tying themselves to the operation of predilection reform: "Months ago, when President Barack Obama made strength guardianship his top indigenous prerogative and picked the Cadaverous Establishment span to get it turn up, he selected individuals for reasonable this twinkling -- not for the dawn or the medial of the action, but for the end of the single combat" (Nicholas, 10/18).
...News
Say this for Charlie Manuel:Philadelphia Inquirer - Oct 27, 2009
But the Phillies also could be hedging their bet. If Hamels pitches well in Game 3, they could have the option of bringing him back on short rest for Game 6 and more »GlobalCustodian.com (subscription) - Oct 27, 2009
"Although the share of hedge funds using these options products remains high and actually increased in cases year-over-year, the absolute number of hedge and more »Kaiser Health News - Oct 19, 2009
who is involved in the (Senate) negotiations, said they will push for the government option to be included in the bill that goes to the Senate floor. Post Politics Hourall 2,417 news articles »Wall Street Journal (blog) - Oct 27, 2009
The president appears to be hedging. He has recommendations on his desk from Gen. Stanley McChrystal, his senior Afghan commander, that there should be a and more »CanadianBusiness.com - Oct 27, 2009
If you think the risks are substantial in either direction, consider another form of hedging: currency options. As with a forward contract, you can set one