15 lines
967 B
Plaintext
15 lines
967 B
Plaintext
Strange Deltas
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Because American calls become an exercise possibility when the ex-date is
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imminent, the deltas can sometimes look odd. When the calls are trading at
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parity, they have a 1.00 delta. They are a substitute for the stock. They, in
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fact, will be stock if and when they are exercised just before the ex-date.
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But if the puts still have some residual time value, they may also have a
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small delta, of 0.05 or perhaps more.
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In this unique scenario, the delta of the synthetic can be greater than
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+1.00 or less than −1.00. It is not uncommon to see the absolute values of
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the call and put deltas add up to 1.07 or 1.08. When the dividend comes out
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of the options model on the ex-date, synthetics go back to normal. The delta
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of the synthetic again approaches 1.00. Because of the out-of-whack deltas,
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delta-neutral traders need to take extra caution in their analytics when ex-
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dates are near. A little common sense should override what the computer
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spits out. |