delta hedge through Swap instead of Futures of same expiration date

[igkoh]

In huobi_option_mm, delta_hedging create_orders through swap_trader for delta neutrality. For example, call option exercise price 10500 at expiration date 0911 (BTC0911C10500-Weekly) is to hedged through BTC0911 Weekly futures, instead of swap which is perpetual. Put-call (of same exercise price) parity equation also states c-p ~ F with the same expiration date for future approximately replacing underlying assets by futures. Why do you choose swap instead of futures of the same expiration date?

Best regards, Ingyu

[foonsun]

Hi @igkoh ,the delta of swap is approximate 1, however, the delta of future can change because of the basis. To hedge the delta more precisely, we choose the swap.

[igkoh]

For example, currently index price 10179, while future is 10184(basis 5 contango ) and swap 10172(-7 relative to index). Swap is approximately of delta 1, not much affected by basis and controlled by funding rate. Thus we neutralize delta with swap.

We sell options with high implied volatility and large theta decay (weekly) near expiration date. If options are out-of-money(OTM) with low delta, just take profit. But market movement makes options to in-the-money(ITM) with large delta(positive for call and negative for put), take hedge position with swap in delta_hedging. Dynamical adjustment with combined option and swap MM are exciting fields to be explored in Huobi.

I greatly appreciate well written delta_hedging and place_orders with list (option and swap) of config.accounts in platforms. Current your strategy.py augmented with deep learning redis mediated can solve option mm with detection of high implied Volatility and large theta in Black-Scholes(also through redis for low latency).

Best regards, Ingyu

[foonsun]

@igkoh Great! Thanks for your feedback.