How a 17 Billion Fund Hedges Delta
Updated
JHEQX - 17 Billion Fund - Delta Hedging Flows
Today, I’m breaking down the hedging flows of the JHEQX strategy I have been following.
The idea is simple.
Large fund means you know the dealers position on the trade. Since they remain delta neutral, one can anticipate if the dealer will be buying or selling delta as the price moves up or down.
POSITIVE GAMMA (Supportive)
Dealer will Buy SPX / Futures during a decline and Sell SPX / Futures during a Rally.
When the trade is Positive Gamma it acts as a supportive force for the markets.
As the price of SPX moves down near the put strikes, the strategy delta hedging will flip negative.
NEGATIVE GAMMA ( Volatility )
Dealers delta hedging will move in the same direction as the market. Sell lower, Buy higher.
When the trade is negative Gamma it increases volatility in the market.
DELTA GRAPH
The delta graph represents the rate of change and direction this strategies deltas will move.
You can see today (Aug 28) the curve is muted and doesn’t change quickly.
Inversely, the deltas rate of change accelerates the closer to expiry the options get.
How does that help?
For one, you know where the strategy moves from a positive to negative gamma (is volatile or supportive).
Two, you can anticipate the magnitude of volatility or support.
Today, I’m breaking down the hedging flows of the JHEQX strategy I have been following.
The idea is simple.
Large fund means you know the dealers position on the trade. Since they remain delta neutral, one can anticipate if the dealer will be buying or selling delta as the price moves up or down.
POSITIVE GAMMA (Supportive)
Dealer will Buy SPX / Futures during a decline and Sell SPX / Futures during a Rally.
When the trade is Positive Gamma it acts as a supportive force for the markets.
As the price of SPX moves down near the put strikes, the strategy delta hedging will flip negative.
NEGATIVE GAMMA ( Volatility )
Dealers delta hedging will move in the same direction as the market. Sell lower, Buy higher.
When the trade is negative Gamma it increases volatility in the market.
DELTA GRAPH
The delta graph represents the rate of change and direction this strategies deltas will move.
You can see today (Aug 28) the curve is muted and doesn’t change quickly.
Inversely, the deltas rate of change accelerates the closer to expiry the options get.
How does that help?
For one, you know where the strategy moves from a positive to negative gamma (is volatile or supportive).
Two, you can anticipate the magnitude of volatility or support.
Note
Reposted and Updated.Zoom out. Do you see it.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.