Dynamic delta hedging in spot-up volatility-up regimes
Traders in highly volatile, spot-up volatility-up assets must dynamically adjust their Black-Scholes deltas to account for shifting spot-volatility correlations.
The argument
The guest argued that standard Black-Scholes models fail to capture how an option's delta gains sensitivity when volatility rises alongside the underlying spot price. Traders must continually calibrate a 'spot-vol beta' using intraday tick data to avoid being under-hedged during explosive rallies.
The thesis, stress-tested
✓ What validates it
- ✓Intraday tick data showing a rising positive correlation between spot price increases and implied volatility increases
▸ Risks discussed
- ▸Spot-vol correlation betas are highly time-varying and can collapse unexpectedly
- ▸Over-adjusting deltas can lead to over-hedging and whipsaw losses if the regime shifts
Hear it yourself
"Chris Abdelmasia, author of the Moon Tower Substack and founder of the options analytics firm, Moon Tower dot AI, has spent years thinking about option pricing, vol regimes, and the mental math traders use to translate volatility into price."
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