DELTA HEDGING &
GREEK NEUTRAL
Michael Feeley
Greeks
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Options trading has become one of the most common
exchange traded derivatives
In addition to the risk factors that affect stock prices,
options are impacted by additional factors, such as:
Time to expiration
 Volatility of the underlying asset
 Interest rate fluctuation
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These factors are known as the Greeks
They are used to monitor and value different securities
Greeks
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Delta measures the rate of change in the price of the
option in correlation to changes in the price of the
underlying security.
Vega is the measure of the instrument’s sensitivity to the
volatility of the underlying asset.
Theta is the measure of the option’s sensitivity to the
time to expiration.
Gamma measures the rate of change of Delta in
correlation to change in the underlying price.
Rho measures the sensitivity of the option to interest
rate changes.
Delta Hedging
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Delta Hedging means making your position Delta
neutral.
This means that as an investor you’re looking to maintain
a fixed position in your investment.
In theory, delta represents the change in price for an
options contract, per dollar change in the underlying.
In practical terms delta hedging is not very popular.
Due to constant volatility and many affecting factors,
investors must hedge constantly for it to be effective.
Thank You