How to Calculate the Delta of a Hedge

Here I've gone into the options calculator and got the 1% difference in delta for the Hedges I write about.

For this hedge (JHQTX) The delta at strikes are as follows:

SPX goes down 1%
4030 - 0.0616
3990 - 0.17

Dealer Needs to Sell 0.108 of delta

To calculate how much that is for this strategy.

Delta * Price * 100 shares * # of Contracts
0.108 * 4030 * 100 * 7000 = $304,668,000 to buy or sell for 1% move in SPX.

Since the funds hedge is currently in negative gamma territory, the hedging flows will flow with the market (sell the rips, buy the dips).

This is the smaller of the 3 funds. I updated the big one last night because Fridays decline brought it closer to volatility zone, but is still providing supportive flows (sell as SPX goes up and buy as SPX goes down)

The big fund (JHEQX) delta flows currently look like this.

SPX goes down 1%
4047 - 0.66
4007 - 0.53

Dealer Needs to Buy 0.13 of Delta per 1% move down SPX

Delta * Price * 100 shares * # of Contracts
0.13 * 4047 * 100 * 46000 = 2,420,106,000 to buy or sell for 1% move in SPX.

For now, even with the smaller fund expiry in 2 days, the big funds delta hedging flows cancel out its impact and adds supportive hedging flows greater than 7x of the expiring small fund.

These flows change rapidly as implied volatility rises or falls.

So any 1% change today is likely to be different than 1% change tomorrow.

The next set of charts I will chart how higher or lower volatility changes effect these dynamic hedged deltas.

—— DISCLAIMER —

The delta numbers are approximate based on an options calculator and may not be accurate as brokers buying/selling.

This information is intended for educational purpose only.

I chart these funds to learn the strategies and effects on the market.

If you see a mistake please point it out.

Thanks for reading.

Comment:

Quick Intraday update to this idea.

This is a smaller hedge of only 2 billion in assets, but it doesn’t mean there isn’t 1B, 50B, 500B more in assets hedged in a very similar method. 9% inflation, Recession Looming and so much more bears can cling to selling the market down for September.

So let’s say 500B in assets are hedged for EOM close on SPX and speculate they are using the same strategy as the one I outlined here. You can draw some conclusions that based on the yellow circles in this chart.

That in a Risk On environment, these hedging flows will drift up towards the Short Call for expiry.
The same can then be said about Risk Off, but instead the flows are drawn lower to the long put instead.
Q1 and Q2 tagged the long put as fears of inflation drove markets to step lower.

Q3 launched upwards with Short Squeezes and Hedging flows pushed towards the Short Call.
Until Jerome Powell was clear as crystal, policy is Risk Off.

Using this thesis, one could make the following assumption based on past EOM flows + Market Sentiment.

Not Financial Advice. Thinking out loud, hope nobody can hear me.

Comment:

How it's going so far.