Delta Neutral Strategy in Excel (2 Practical Examples)

When evaluating assets or stock options, we have to think dynamically as we can take many options, as well as the prices, can change at any time. In this regard, we have to calculate delta hedging value to get the change in option as the underlying stock or asset changes. We have to find the equilibrium position sometimes here the net change is zero which results in delta neutral strategy. In this article, I will show you 2 practical examples to determine delta neutral strategy in Excel.

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What Is Delta Neutral Strategy?

2 Practical Examples of Delta Neutral Strategy in Excel

Example 1: Delta Neutral Strategy for Call Option

Example 2: Delta Neutral Strategy for Put Option

Conclusion

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Delta Neutral Strategy.xlsx

What Is Delta Neutral Strategy?

Delta is basically the rate of change of option value with respect to the rate of change of underlying stock price. And, Delta Neutral strategy is the portfolio strategy with which you will be able to accomplish the total delta of your assets as zero.

For delta calculation, you will need to know about the call option and the put option first.

Call Option:

These types of options are available when the market price is above the exercise price. So, the stockholder can buy the share below the security price and at the strike price. In this case, the delta ranges from 0 to 1. For example, If the delta value is 0.8, it means if the share price increases by $1 dollar, the call option will increase by 80%.

Put Option:

Put options are available when the market price is below the exercise price. So they can gain a profit by selling the shares at a higher price than the market price. In this case, the delta ranges from -1 to 0. So, if the delta value is -0.7 here, it means, the put option will increase by 70%, if the underlying stock falls by $1 dollar.

The formula to calculate the delta value is below:

Delta = [(O_f – O_i)/(S_f-S_i)]

Where,

O_f= Option’s final value

O_i = Option’s initial value

S_f = Underlying stock’s final value

S_i = Underlying stock’s initial value

2 Practical Examples of Delta Neutral Strategy in Excel

Example 1: Delta Neutral Strategy for Call Option

Say, you are given initial and final values for the call option and the underlying stock. Now, you need to determine the delta-neutral strategy.

For this, you will need to calculate the delta value first. Follow the steps below to do this.

📌 Steps:

First, click on cell C9.
Following, insert the following formula in the formula bar.

=(C6-C5)/(C8-C7)

Subsequently, hit the Enter key.

Thus, you will find that the delta value is $0.30. Now, you have to adjust all the other delta for your shares to make the final delta as 0 to attain the delta neutral strategy. For example, if the option’s final value is $50.00 or the initial value is $80.00 you will attain the delta neutral situation.

Example 2: Delta Neutral Strategy for Put Option

Now, say, you have initial and final values for the put option and the underlying stock. You need to determine the delta-neutral strategy for this case.

Similar to the previous case, you will have to calculate the delta value first. Follow the steps below to achieve this.

📌 Steps:

First and foremost, click on cell C9.
Afterward, insert the formula below and hit the Enter key.

=(C6-C5)/(C8-C7)

Thus, you will find the delta value for this case. Now, you have to adjust the values to get the delta as 0 to achieve the delta-neutral strategy. For an instance, you can increase your option’s final value to 100 or decrease the initial value to 50 to attain the delta-neutral position.

Conclusion

So, in this article, I have shown you two practical examples to determine and achieve the delta-neutral strategy in Excel. I suggest you read the full article carefully and practice accordingly. I hope you find this article helpful and informative. You are welcome to comment here if you have any further questions or recommendations.

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