9 Minute Read

Tackle Today: Mind your Delta

October 7, 2021

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Else ruin awaits.


The ongoing correction is introducing traders anew to risk. And it makes now a perfect time to refresh your memory on delta and beta weighting. Here’s a primer. Delta measures how much your trade makes or loses if the underlying stock rises $1. Bullish positions have a positive delta, and bearish positions have a negative delta.

For instance, if you have a 20 delta trade on Apple, and the tech titan climbs $1, you will make $20. I suggest looking at the stock’s average daily movement via the ATR indicator to set your expectations. Apple has an ATR of $3.11, which means your 20 delta trade will fluctuate approximately $62 a day. There are two key takeaways from understanding the math.

First, the higher your position delta, the bigger the swings in profit/loss.

Second, the higher the ATR, the bigger the swings in profit/loss.

Over time, you’ll discover your comfort level on how much fluctuation you can handle – provided, of course, you pay attention!

Consider monitoring the delta of each position as part of your daily routine. If you’re using ThinkorSwim, you can easily track it in the Monitor tab. Once you grasp how to follow the delta of each trade, you can graduate to doing so on your entire portfolio. For that, you need beta weighting. I’ll share more in tomorrow’s message.


Chart of the Day

Verizon Beckons

Verizon made a second appearance in Trade Masters this week. Apparently, Coach Mark and Tyler have similar tastes. So what do you say about VZ here? Do you find the significant support test and juicy 4.69% dividend yield as compelling as the coaches?

Video of the day

Trade Masters

Join Coaches Greg Holmes and Tyler Craig for another edition of Trade Masters.

Today’s line up

Traders Lounge 11 AM EST

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Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Cash Flow Club 8:30 PM EST

Join Tyler Craig as he hosts the weekly Cash Flow Club.

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