The commonly used hedging methods for options mainly include protective hedging, covered hedging and collar strategies: options(i) Protective hedging:
1.Equal market capitalization hedging:
Equal-to-market hedging, also known as equal-value hedging, is a hedging strategy in which the notional value of an option used for hedging is equal to the market value of the asset to be hedged. Usually, the notional face value of the option and the market value of the hedged asset are 1:1 on the opening date, and then held until the expiration date, and there is usually no rebalancing in between.
The equal-capitalization hedged portfolio has a positive delta value. In an equal-capitalization hedging portfolio, the delta of the spot is 1 and the delta of the put option is between -1 and 0, so the net delta of the equal-capitalization portfolio is positive. Before the expiration of the put option, when the market value is **, the market value of the portfolio will decrease with the market, but because the delta of the whole portfolio is lower than that of the pure spot holding, the delta value of the put option will gradually approach -1 with the market, so the range of the whole portfolio** is relatively small.
Options circle collated and released.
2.Delta Hedging:
Delta hedging is a strategy that determines the percentage of hedging based on the need for hedging exposure, the delta of the option, and the delta of the asset being hedged. The delta of the option will change with the change of the underlying **, so the initial delta of the whole portfolio will also change with the change of the underlying **. Depending on whether the delta value of the portfolio is adjusted during the holding period, delta hedging can be divided into static delta hedging and dynamic delta hedging
Static delta hedging: Adjustment is made only on each rollover date, not during the holding period. The hedging ratio is determined according to the delta of the option, and for full hedging, i.e. delta neutral hedging, the hedging ratio of spot and options is 1:1 delta.
Dynamic delta hedging: Adjustments are made not only on the rollover date, but also when the delta change of the portfolio exceeds a certain threshold. Since static delta hedging is only adjusted at rollover, the combined delta will change during non-rollover, which will affect the effect of option hedging risk, so dynamic delta hedging is introduced. The principle is that when the delta of the entire portfolio exceeds a certain threshold, the entire portfolio is adjusted once to keep the delta of the portfolio unchanged and hedge the directional risk of the portfolio. Theoretically, the delta dynamically adjusted hedging scheme can ensure that the portfolio is not affected by the directional fluctuations of the target.
(ii) Covered hedging:
A covered strategy is when you sell the same number of call options while holding the asset. Compared with simply holding spot, the covered strategy can play a role in enhancing returns because it can obtain an option fee. However, when the market is large**, due to the sale of call options, the option side may bring losses, that is, to a certain extent, truncate the gains**. Similarly, when the market is large**, although the premium obtained by selling options in a covered strategy can make up for some losses caused by spot**, the hedging effect is limited. Therefore, covered strategies are usually more suitable for hedging by *** or slow bulls**.
(3) Neckline strategy hedging: flexible hedging of risks
The collar strategy is constructed by selling call options while holding spot, and putting options. In fact, the neckline strategy can be understood as the formation of a certain protection for the covered strategy through put options. The covered strategy has a certain profitability when the market is up, but it has a greater potential risk when the market is large**.
Through the ** put option, the underlying risk of the covered strategy can be hedged, which constitutes the neckline strategy, also known as the protective neckline strategy. Investors can flexibly adjust the exercise of the two options in the neckline strategy** according to their own risk-return needs, thereby adjusting their risk exposure. In the more developed options market, due to the existence of margin preferential policies, compared with hedging, the capital occupation of the neckline strategy is relatively small.