# Delta Hedging in Excel – 3 Examples

## What Is Delta Hedging?

In stock markets, delta hedging is used to lower the risk and maximize profit.

### Example 1- Calculate Delta Hedging Using Stocks in Excel

The dataset showcases a companyâ€™s condition in the Stock Market. It details the companyâ€™s option price and the underlying stock between the 1st and 31st of October 2022.

Calculate the delta based on the comparison between the 1st and 31st of October:

Delta is the ratio of the difference between the Option Price and the Underlying Stock .

Delta Hedging is a trading strategy to reduce directional risk.

STEPS:

• Use the following format to show Options and Underlying Stocks.
• For Option 1, the starting and the final values of Option and Underlying Stock were entered.
• Click C8 cell and use the following formula in the formula bar to calculate the Delta:

`=(C5-C4)/(C7-C6)`

• Press Enter to see the result.

This formula indicates (Final- Initial Option Value)/ (Final-Initial Underlying Value).

• Enter information for Option 2.
• Here, the starting and the final values of Option and Underlying Stock.
• Calculate the Delta for Option 2:

• Click C16 cell and enter the following formula:

`=(C13-C12)/(C15-C14)`

• Press Enter to see the result.

To calculate the overall Delta for the company:

• Sum the Delta values.
• Select C17 cell and use the following formula:

`=C9+C16`

• Press Enter.

To calculate the number of stocks you need to buy or sell:

• Select C17 and enter the following formula:

`=C17*100`

• Press Enter to exit the editing mode and see the result.

For US stock options: 1 option contract = 100 shares. 1 unit Delta means 100 shares or stocks. The number of stocks will be a multiplication of Delta by 100.

• For Delta Hedging, you need to sell your stocks if Delta is positive.
• After selling these stocks the resultant Delta will be 0.
• You need to buy the calculated amounts of stocks if Delta is negative.
• Enter the following formula in D19:

`=IF(C17>0,"Sale","Buy")`

The IF function determines if the value of C17 is positive or negative. If the value of the cell is greater than 0, it will return Sale. Otherwise, Buy.

### Example 2 – Applying Options for Delta Hedging in Excel

If the resultant Delta is 0.6, you have to buy contracts with -0.6. If the resultant Delta is -0.6, you have to buy contracts of +0.6.

STEPS:

• The previous dataset was used.
• In Option 1, information is unchanged.
• In Option 2,Â  information was slightly changed.

To recalculate the value of Delta for Option 2:

• Enter the following formula in C16:

`=(C13-C12)/(C15-C14)`

• Press Enter to see the value.

To calculate the total Delta for your company:

• Enter the following formula in C17:

`=C9+C16`

• Press Enter.

The Delta value is calculated.

To buy a contract with -0.2, so that the resultant Delta isÂ 0:

• Enter the following formula in C19:

`=C17*100/(200/100)`

• Press Enter to see the result.

For US stock options, 1 option contract = 100 shares.Â  1 unit Delta means 100 shares or stocks. 0.2 means 0.2*100=20 shares. Divide the share by total option value. For the 2 options, the total Option value is 200. The result is 20/2=10, which indicates Contracts.

### Example 3 – Manage and Adjust Delta Hedging

STEPS:

• This is the dataset.
• For Delta Hedging, you need to buy 10Â contracts.

• Opinion 1 changes rapidly.
• The Delta value of Option 1 will be 13.
• The Final Value of the Option was supposed to be \$120.
• But the Final value of the Option changes to \$170.
• As a result, the value of Delta is changed to 0.3.
• The value of Option 2 is unchanged.
• The total Delta value is now 0.37.

Calculate the actions needed:

• Enter the following formula in F16:

`=F14*100/(200/100)-C19`

• Press Enter.

For US stock options, 1 option contract=100 shares. 1 unit Delta means 100 shares or stocks. 0.37 means 0.37*100=37 shares. Divide the share by the total option value. For the 2 options, the total Option value is 200. The result is 37/2=18.5~19, which indicates Contracts. It was planned to buy 10 contracts, you need to buy 1910=9 contracts.

• If F16Â is greater than 0, it indicates that you need to buy.
• You need to sell the contracts for Delta Hedging.
• Enter the following formula in G17 cell:

`=IF(F16>0,"Buy","Sale")`

• Press Enter to see the result.

## Related Articles

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Sudipta Chandra Sarker

Sudipta Chandra Sarker, BSc, Electrical and Electronic Engineering, Bangladesh University of Engineering and Technology, Bangladesh, has worked on the ExcelDemy project for over a year. For ExcelDemy, he has authored 42 articles and reviewed over ten articles. He is employed as a junior software developer at the moment. He aims to create various useful Microsoft Office Add-ins, extending the functionality of Office programs. His interests span Microsoft Office Suites, Data Science, VBA, VB.NET, ASP.NET, C#, Excel, and Desktop... Read Full Bio

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