Day Three
Day three saw the stock price trending. It slowly drifted up $2. There would
have been some judgment calls throughout this day. Again, delta-neutral
trades are for active traders. Prepare to watch the market much of the day if
implementing this kind of strategy.
When the stock was at $41 a share, Mary decided to guard against further
advances in stock price and hedged her delta. At that point, the position
would have had a −2.80 delta. She bought 280 shares at $41.
As the day progressed, the market proved Mary to be right. The stock rose
to $42 giving the position a delta of −2.80 again. She covered her deltas at
the end of the day by buying another 280 shares.
Covering the negative deltas to get flat at $41 proved to be a smart move
today. It curtailed an exponentially growing delta and let Mary take a
smaller loss at $41 and get a fresh start. While the day was a loser, it would
have been $280 worse if she had not purchased stock at $41 before the run-
up to $42. This is evidenced by the fact that she made a $280 profit on the
280 shares of stock bought at $41, since the stock closed at $42.