Performing a Delta Lock Transaction
Are you looking to hedge exposure to a particular underlyer, but you prefer to minimize premium expense and aggregate cash outlay by purchasing “out of the money” Puts on the bid side of the marketplace?

Do you also want to automatically adjust the selected Strike Price so that the executed position preserves the intended out of the money relationship to the price of the underlying security?

The ModelRoute Solution
To establish the properly weighted position, ModelRoute offers an Order Type, Delta Lock/ Contract Only/Contract Variable, and allows you to purchase a specific number of contracts. You can also enter the Expiry Date and the Strike Price for the Put option, and its Implied Volatility.

ModelRoute then automatically generates the Fair Market Value for the Put – the option’s Dynamic Limit Price (DLP) – the Delta and other related “Greeks.” As the market price for the underlyer fluctuates, ModelRoute automatically re-models the Put’s DLP and adjusts the number of contracts that need to be purchased in order to achieve the desired exposure. The system also monitors the relationship of the selected Strike Price to the price of the underlyer. If the underlyer price moves outside a mathematically prescribed range, ModelRoute automatically modifies the Strike Price.

For example, if you want to purchase a Put option that is 20% out of the money, you will construct an order using a Strike Price that is 20% below the underlyer’s price. If the market price for the underlyer increases such that a 20% out of the money Put results in a higher Strike Price, ModelRoute automatically changes the original Strike Price to the modified Strike Price and adjusts the number of contracts to reflect the adjusted Delta.