13 Minute Read

Options Theory: Delta, the Great Equalizer

September 29, 2018

By | No Comments

Options 101. Essential for beginners. FREE as part of the PRO Membership. click on the image to try it free for 15 days.

Last Update: August 2021

I love the options greeks for many reasons. One will be on full display today. Delta is a multi-faceted metric used by traders a variety of ways. Perhaps one of my favorites is to use it as an equalizer.

Allow me to explain, starting with a brief vocabulary review.

Options Theory: Delta, the Great Equalizer

Bullish positions are positive delta, and bearish positions are negative delta. On an elementary level, there are six fundamental ways to express a directional opinion. Three are bullish, and three are bearish.

  • Positive Delta: Long stock, long calls, short puts
  • Negative Delta: Short stock, long puts, short calls

Viewed through the lens of delta, there isn’t a difference between buying AAPL stock, buying AAPL calls, or selling AAPL puts. For example, buying 50 shares of stock carries the same directional exposure as purchasing a 50 delta call or shorting a 50 delta put. They are, from a directional standpoint, equal.

This is the beauty of plotting delta as a column in your position statement. You get to distill every single position into a single number which represents the level of exposure. Easy. Simple. Clean.

Now, another area where this helps is understanding the similarities between positions. If I’m bearish on Alibaba (BABA) stock, I have a dozen different ways I can express my opinion such as:

  • Short 50 shares of stock
  • Buy an ATM -50 delta put
  • Sell two OTM 25 delta calls
  • Buy two -25 delta put vertical spreads
  • Buy four -12.50 delta put diagonal spreads

Ultimately, all of these have the same degree of directional exposure. Over the next dollar rise or fall, I will experience a $50 fluctuation in my position. Which strategy I choose, then, comes down to a few different factors. But the one that I will argue is the most important is this: select the strategy you have the most confidence in your ability to trade profitably over time. And since profitability is a byproduct of trade management, we could say that the strategy you’re most confident in managing should be your go-to.

I’m thinking primarily about how to deal with trades gone wrong. Personally, I find it easiest to handle short calls. Thus, they are my favorite way of expressing a bearish opinion. I suspect, if pressed, I could apply some of my time-tested tactics for wrangling a losing short call position to other strategies mentioned above, but I’m not convinced it would be worth the extra effort. For now, I’m content in relying on the adage, “if it ain’t broke, don’t fix it,” and sticking with my bread and butter.

Short calls, and their defined risk counterpart bear calls, have a lot going for them. First is the wide profit range that allows for plenty of wandering by the underlying. Second is the inherent overpricing of options. The third is the benefit of time decay. Fourth is the ease with which I can scale in to improve my odds. Fifth is the can-kicking that’s available via rolling out if things get nasty and I need to extend the duration to see if more time will bail me out.

Anyways, this started out as a pitch for why delta is one of my best buddies and turned out to be a lovefest for short calls. My objective (and hopefully I achieved it), was to show how when you truly understand delta you begin to look at the myriad of bearish strategies as simple variations of a theme. Short delta is short delta, and I don’t much care how you get it when you’re bearish. As long as you’re confident in your management abilities, then swing away with whatever strategy you like.


Options Trading for Beginners

Continue learning the basics of Options trading with this additional freemium content from Tackle Trading.

Options 101 [Free Content]

Access more free high-quality articles to improve your knowledge of Options Trading.


The Options Heuristic Series [Free Content]

How can we explain the basics of Options so that our students can really learn, without getting confused with so many concepts, terminologies, and strategies? That’s the idea behind the series.


Options Greeks Guide [Free Content]

The Options Greek Guide is a simple, powerful resource to help you better understand how to use the Greek’s.
As you build, enter, and manage Options Trades, it’s helpful to understand the math behind the Black Scholes Option Pricing Model. Using the Options Greek Guide will give you the information and training on how time, volatility and asset price changes impact options values.


Options 101 Course [Premium Content]

The Options 101 Course is exclusive to PRO members. Try it for free for 15 days by clicking on the button below.


Options Report [Premium Content]

The Options Report is a weekly briefing delivered to Pro members of Tackle Trading. In this report, you will receive information and education that will help you develop as a trader. We will also highlight attractive trade setups for the coming week that you can add to your watchlist.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

Chart Modal

Tackle Trading