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Market MeasuresDelta Hedging in Various Markets | Apr 26, 2019
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    Market MeasuresDelta Hedging in Various MarketsApr 26, 2019

    Using the beta weighted delta of a portfolio one can determine how many shares of an index to buy or sell for hedging. In this piece, the Research team explores the value of a hedge to a portfolio in various market conditions including neutral periods, bullish periods, and bearish periods.

    The Study:

    • Sold 50 Delta Puts
    • AAPL, IBM, XOM, JNJ and GS
    • 45 Days to Expiration
    • Held to Expiration
    • Compared Cumulative Non-Hedged and Beta Weighted Delta Hedged Performance During Three Market Environments

    Results:

    Across three market conditions where the SPY was neutral, bearish, and bullish having short SPY shares to hedge a portfolio of short puts reduced the portfolio volatility. Additionally, when this hedge was maintained throughout the year the hedged and non-hedged portfolios had the same ending P&L while the hedged portfolio had nearly a third less daily P&L volatility.

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