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#465968 - 05/18/17 22:24 Trading options with Zorro: How to calculate Delta
GreenBoat Offline
Newbie

Registered: 11/06/16
Posts: 9
I would like to test Delta hedging / Delta neutral strategies.

Is there some easier way how to calculate Delta, then using contractVal with all the inputs?

I have historical option prices (option chain for every day).

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#465974 - 05/19/17 08:50 Re: Trading options with Zorro: How to calculate Delta [Re: GreenBoat]
jcl Offline

Chief Engineer

Registered: 07/22/00
Posts: 25499
Loc: Frankfurt
Yes, you can calculate it from the premium price difference divided by the spot price difference.

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#465980 - 05/19/17 10:33 Re: Trading options with Zorro: How to calculate Delta [Re: jcl]
GreenBoat Offline
Newbie

Registered: 11/06/16
Posts: 9
So easy, why didn't I think of that!

Thank you jcl

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#466000 - 05/19/17 14:40 Re: Trading options with Zorro: How to calculate Delta [Re: GreenBoat]
GreenBoat Offline
Newbie

Registered: 11/06/16
Posts: 9
I am trying to calculate delta as mentioned, but unfortunately the result is not as expected.

Few examples (from Interactive Brokers platform):

SPY, expiration today, PUTs:

Strike 237, PUT midpoint price 0.835, Delta -0.696
Strike 236, PUT midpoint price 0.44, Delta -0.240
Premium price difference 0.395 is not near the deltas.

SPY, expiration in 28 days, PUTs:

Strike 237, PUT midpoint price 3.48, Delta -0.573
Strike 236, PUT midpoint price 3.08, Delta -0.513
Premium price difference 0.4 is not near the deltas.

DAX, expiration in 28 days, CALLs:

Strike 12650, CALL midpoint price 158.5, Delta 0.474
Strike 12700, CALL midpoint price 133, Delta 0.427
Premium price difference 25.5/50=0.51 is at least near the deltas, but it is not too precise.

I guess that the problem is, that with different strike not only Delta changes, but also Implied Volatility. So the calculation of Delta should be a bit more complex.

I think that I have to use contractVal.

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#466001 - 05/19/17 15:04 Re: Trading options with Zorro: How to calculate Delta [Re: GreenBoat]
jcl Offline

Chief Engineer

Registered: 07/22/00
Posts: 25499
Loc: Frankfurt
Yes, this cannot work since you used premiums with different strikes. You need of course the same strike and expiry for calculating the delta. And use prices not too far apart - only a hour or so, and with no large volatility change. Otherwise you get no delta, but some mix from delta, theta, and vega.

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#466003 - 05/19/17 15:50 Re: Trading options with Zorro: How to calculate Delta [Re: jcl]
GreenBoat Offline
Newbie

Registered: 11/06/16
Posts: 9
Makes sense...

I have only End Of Day historical data.

Unfortunately, indeed, it doesn't work with EOD data + actual prices, at all:

Example from IB

DAX:
Strike 12650, expiration in 28 days
- yesterday's option close price 228, underlying close price 12590
- today's option price 195, underlying price 12613
- delta -0.535
Calculation: 33/23=1.43

SPY:
Strike 238, expiration in 28 days
- yesterday's option close price 2.10, underlying close price 236.77
- today's option price 2.29, underlying price 237.6
- delta 0.49
Calculation: 0.19/0.83=0.22

I am going to continue with Zorro's implemented functions.

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