«Sensitivity to Price Movement.»
Delta might be the most fascinating Greek for the simple fact that it is multi-dimensional. It has not one but three primary definitions or uses. Today we’ll look at the first.
Delta measures how much you make/lose if the stock rises $1.
Bullish positions have a positive delta, signaling you profit from a price rise. This includes long stock, long calls, and short puts.
In the case of stock, one share equals one delta. So, if I’m long 225 shares of stock, my delta is 225.
Options operate slightly differently when it comes to delta. One contract could represent anywhere between zero and one delta, depending on whether the option resides in- or out-of-the-money. For example, if I’m long a call with a delta of 0.60, then I make 60 cents per share per $1 move in the stock.
And since most options control 100 shares of stock, we would say that a 0.60 delta call rises $60 for every $1 move in the stock. That is 0.60 x 100 shares = $60.
Bearish positions have a negative delta, signaling you lose when prices rise. This includes short stock, long puts, and short calls. They behave similarly to everything we explained, except they lose money when the underlying stock rises.
Tomorrow we’ll look at how delta reflects the probability of making money.
🛑 Upcoming Options 101 Webinar: Options Greeks for Beginners with Coach Tyler Craig | February 28th, 2022 at 8:30 PM EST on YouTube
Want to really understand what makes an options contract tick? Learn the Greeks. They are the metrics that allow you to measure everything. Join Tackle Trading and get ready for an insightful discussion that will help you take your options trading to the next level.
On this webinar you are going to learn:
✅ What are the Options Greeks?
✅ The two dimensions of Delta
✅ Time Decay and Theta
✅ The role of Gamma
✅ Volatility and Vega
You don’t want to miss it!
Video of the Day: Options Greeks Guide Part 2: What Is The Black-Scholes Model (BONUS: FREE Options Greeks Guide)
What is the Black-Scholes Model and why is it relevant to your trading? This is what this video will cover. Here are the topics:
✅ The History of the Black-Scholes Model
✅ The Mathematical Formula
✅ What it is used for
✅ How to use the Black-Scholes Model in your trading
Access the entire Options Greeks Guide video series
Continue learning about this powerful options trading concept: the Options Greeks. The entire Options Greeks video series can be accessed by clicking on the thumbnails below.
What are the Options Greeks and how can you utilize them in your trading routine in order to perform better in the market? This is what you will be learning in this video series.
What is the Black-Scholes Model and how to use it in your trading? This is what this video will cover.
Chart of the Day: Tracking Delta on Thinkorswim (TOS)
Brokerage platforms like ThinkorSwim make tracking delta for your open positions and overall portfolio easy. If you don’t already have it as a column heading. Add it!
Today’s line up
Tales of a Technician: Bear Market Best Practices
Today’s videos is a follow-up to January’s post on how I’m managing the bear market.
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