Why there is two different values of delta at upstox and sensibull?
4th Sep 11:40 banknifty
Hi,
Thanks for bringing this to our notice. We are checking this internally with our team. We will get back to you shortly. Thanks.
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@Abhi1 - Thanks for reaching out. This is an interesting question that unfortunately has a complicated answer. The option Greeks are derived from the Black-Scholes option pricing formula. The B-S model takes the underlying price, strike price, days until expiry, interest rate, and implied volatility (IV) as an input to calculate the optionâs theoretical price along with the Greeks. Since there is no theoretical price but rather a market price of the option, the market price is used to âback intoâ the IV. This IV is then used along with the other parameters (strike, underlying, etc.) to calculate the Greeks.
Expiry is the problem. Typically, IVs and Greeks are calculated using the number of days until expiry. On expiry, this shifts to âpercent of day until expiryâ. This can be either done as percent of 24-hour day or percent of trading day. âPercent of 24-hour dayâ makes the calculation more synonymous across all other days until expiry. âPercent of trading dayâ makes the calculation possibly more relevant on the expiry day (but only on expiry). We are using the former methodology.
There are other implications associated with expiry. Because you are now using a sub-one-day value, either percent of 24-hr or percent of trading day, you need to assume continuous time pricing. For example, if a contract strike doesnât trade for 15-minutes on a non-expiry day, it doesnât really impact IV and the Greeks. However, if you are decrementing 15-minutes of time but not changing the market price due to the contract not trading, it will skew IV which will skew the Greeks. So, any contracts that arenât at the money or are less actively traded on expiry will be susceptible to this. As you get to the final hours and minutes of a contractâs life, this will become more observable. On top of that, using different prices will exacerbate this difference. We are using LTP but you could also use the ask price, bid-ask midpoint, or an extrapolation from more liquid strikes. All will result in a distinct difference in the Greeks on expiry.
Separately, I tried to back into the Sensibull values via a number of different ways. I couldnât get the math to work via the Black-Scholes formula. The only thing that I can think of is that while they are displaying the LTP, they are using either the bid, ask, or mid-point to calculate the IV which would then cause a skew in the IV.
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Hi Mike, Thanks a lot. It helped me a lot in understanding in Detail.
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