This will be in our book:
Hop in, Hop out - trade like a Toad!
What is this "Delta" stuff anyway?
Represents the percent an option changes in relation to the underlying index security. For example, if an option has a delta of 50% and the underlying stock increases by one dollar you would expect the option to increase by fifty cents.
Put Options have a negative delta because when the underlying security goes up, the option value will fall.
Most full service brokers have access to a delta screen and can give you the data.
SO WHAT DOES THIS MEAN TO ME?
Whilst we were keeping an eye on the market today, our little toad minds wandered to thinking about the Delta - so we ran some calculations on today's calls and puts.
Look at the chart below, these are all of the OEX calls and puts between 650 and 690 today. The chart shows their symbol, the high and low of the day, the range, the calculation of the delta, and where the option closed today.
Further down on the chart, it indicates where the particular option should be when the OEX is at 670 and at 660. That should be is based on the calculated Delta.
Two things are important to remember: the Delta and the Time Value of the options will change tomorrow.
Notice where you find the highest delta:
1) Options that are slightly ITM (In-The-Money)
2) Options that are ATM (At-The-Money)
Furthermore, when you spend a lot more money to purchase an option deep ITM, YOU DON'T PURCHASE ANY MORE DELTA! SO, purchase the ones slightly ITM or ATM!
Finally, take a look at the "real popular" cheap options:
Their Delta indicates that they hardly move at all as the OEX moves toward them.
Look at the chart, and I'll see you below the chart....
SO, next time you are tempted to purchase a cheap option, look at the chart. Next time you are tempted to purchase an expensive, deep in-the-money option, look at the chart. Next time you are tempted to hold overnight - talk to Mrs. Toad!
Some of the above numbers are skewed by very low option volume. Also, note that the calculations are what if calculations - today the OEX never had the 660 to 670 range shown in the chart above.
Hope this helps. It will be in the book!
First posted on 6/9/99 on the Evening Update.
Had a little time whilst we were watching the LOW VOLUME market today
and worked on a new page on the site. As most of you know, we
occasionally post a "secret page" on the web site just for our
Here is another one on a topic you should find interesting.
Hope this helps.
ps. Yes, there is music and - Yes, it will be part of our book!
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