s

Delta hedger

Option Workshop contains the Delta hedger. Delta hedging consists of placing orders on future contracts to maintain delta parameters within the desired range.

The delta is a derivative of an option theoretical price. It represents the expected price change of an option if the price of the underlying asset changes by one point

To open the Delta hedgers manager window click the button.

To configure or start the process of an automatic delta hedging you need to activate it – to open its settings window first. To do this, double-click on its name in the list.

Working with Delta hedger

Creating a Delta hedger

To create a new Delta hedger:

  1. Click the button.

  2. Select an account from the drop-down list and an underlying asset.

    Any number of Delta hedgers can work on the same trading account and underlying asset simultaneously.

  3. Select a strategy to hedge from the drop-down list or enter its name in the text field. If a strategy with the specified name doesn't exist in the selected account and portfolio, then it will be created.

    Only one Delta hedger can be attached to a strategy. Note that you cannot create a Delta hedger on an actual strategy.

  4. Confirm your input by clicking the OK button or pressing the Enter key and the Delta hedger will be created.

The figure below shows an example of a Delta hedger creation.

Alternatively, there is a simpler way to create a Delta hedger on an existing strategy in Positions table:

  1. Select the target strategy in the strategies list.
  2. Right-click the strategy’s name in the list to open the strategy context menu.
  3. Select the Add to delta hedger command.

Start Delta hedger

In order to start a Delta hedger, double-click on its name.

After that, the settings window will be opened. You can either click the button on the toolbar or click Start Delta Hedger button in the corresponding row on the manager window. Delta hedger will start immediately.

If the Delta has left the target range, the system places an order. The order size is selected to achieve the target Delta value. A process of an automatic delta hedging is determined by a set of parameters (see Parameters of an automatic delta hedge).

Please note, when editing what-if scenarios for the volatility of any strategies or the underlying assets price, all strategy parameters will be automatically recalculated. This will result in a sharp jump of the Delta, making the Delta hedger react immediately.

Stop Delta hedger

To stop the Delta hedger, either click the button on the settings window toolbar or click Stop Delta Hedger button in the corresponding row on the manager window.

Delete Delta hedger

To delete the Delta hedger, click Delete Delta Hedger button in the corresponding row on the manager window.

Parameters of an automatic delta hedge

Delta hedger has a few parameters that define its behavior. Those parameters can be altered from the Delta hedger settings window.

  • Delta range: Specifies the lower and upper boundary for the desired Delta range. While the target strategy Delta is inside this range, no hedging will be performed. To enter a value:

    1. Stop the Delta hedger.
    2. Double-click on the cell.
    3. Specify a value.
    4. Press the Enterkey.
  • Hedge to: Defines the desired Delta value after hedge.

    In order to switch between available options, click the Hedge target button button.

    If the central direction is selected, Delta hedger will place hedging orders in a way to make the target strategy Delta reach the middle of the Delta range.

    If the range boundaries are selected, Delta hedger will place hedging orders in a way to make the target strategy Delta reach the nearest of the Delta range boundaries.

    After that, the Delta hedger monitors the value of Delta and detects if it has left the target range. When that happens, the Delta hedger places an order on future contract. The order size is selected to achieve the target Delta value.

    You can change the direction during operation.

  • Slippage: Defines the hedging order price slippage in percent.

    A parameter is required to adjust the order price in order to ensure immediate execution of an order. The hedging order prices are altered with the following formula:

    • Bid:
    • Ask:
  • Order TTL: Defines the maximum amount of time for the hedging order to exist, in seconds. If a hedging order has been placed and it has not been filled within the specified time limit, then it will be canceled.

  • Mode: Operating mode that affects details of the Delta hedger's behavior. Descriptions are presented below in the Delta hedger modes section

These parameters use a special kind of text input fields in order to prevent accidental changes. When you change a text, the field background will change to blue. This indicates the changes have not been saved yet. After you have made changes to any of these parameters, confirm your input by pressing the Enterkey.

The text field background will blink orange and return to its original color, indicating that the value you've entered has been applied.

Note that after you make any changes, you should save changes by clicking the button on the Delta hedger window toolbar. Delta hedger settings will be saved immediately and will be reloaded when you start Option Workshop the next time.

Current delta parameter shows the current Delta value in the online mode.

Delta hedger modes

Continuous mode

In this mode, the hedging is performed when the Delta values leave the target range. To activate the mode, set the Continuous switch.

Continuous mode

Discrete-by-time mode

Discrete by time mode alters continuous mode by allowing Delta hedger to hedge every N seconds. Delta hedger working in this mode will track the target strategy Delta changes periodically, instead of reacting immediately. This mode has an additional parameter named Time quant, which defines the hedge time interval in seconds. For example, in the figure below the Delta hedger is configured to hedge not more than once every 10 seconds.

Discrete-by-time mode

Discrete-by-price mode

Discrete-by-price mode alters continuous mode by allowing Delta hedger to hedge only when the base future price crosses any of the prices in the price grid, instead of reacting instantly. In the figure below, as an example, the Delta hedger is configured to hedge at the following prices of the underlying asset: 1400, 1450, 1500, and 1550.

Discrete-by-price mode

Note that if the future price crosses price in one grid values and then crosses back, the hedge will be performed only once, during the first price change.

Enter new values into the price grid by clicking the Add price point button button above the price grid.

New price point

Enter the desired price point value and confirm your input by clicking the OK button or pressing the Enter key. The new price point will be added into the grid. To edit any values in the grid, double-click them to enter editing mode. To delete a price point from the grid, click the Delete price point button button in the corresponding row.

Instead of entering price points manually, you may also use an option to generate them automatically. Enter a start price (e.g., 1500) and price step (e.g., 500) into the corresponding text fields.

Price grid

A Start price should not exceed the price limits. To view limits, right-click on the instrument and select the Instrument information command.

Price limits

If there is no information about limits, the price limits will be defined as:

  • Bottom price limit = LastPrice - 10%
  • Top price limit = LastPrice + 10%

Save your values by pressing the Enter key, then click the Fill grid button. The price grid will be generated. You may edit it manually if needed.

Schedule

Delta hedger supports activity scheduling. You may read more about it in the Schedule.