# Trading Option Greeks Ebook – What 3 Important Clues the Options Trading Greeks “Delta” Tell You

September 3, 2010 by admin

Filed under Option Trading

Trading Option Greeks Ebook

The options “delta” is one of the important component of the options greeks. As you might have already known, the options greeks offer you clues to the likely behavior of an option’s price movement in relation to the corresponding price movement of the underlying share.

Besides the delta, the options greeks also include other components such as the theta, gamma, vega & rho etc. In a nutshell, an options delta is basically a measure of the change in the option price resulting from a change in the price of the underlying stock. The delta is usually expressed as a decimal value in the range of between 0. 00 to 1. 00. The other components of the options greeks are also represented in decimal value. In this article, we would explore the 3 critical information that the options delta could reveal to an options trader so that it would give him or her a clearer picture of the potential price movement of the options so as to help him or her make a better options trading decision.

The first information that an options delta could reveal is that it could tell the options trader the percentage chance of an option trade. This percentage chance refers to the percentage chance in which a particular option would end up in-the-money. By the way, when an option goes in-the-money, it would be said to have attained “intrinsic value” and thus would be worth some value to the options trader when he or she either sells the options position or exercise the option. Thus, an option with a delta value of 0. 80 would mean that it has a 80% chance of finishing in-the-money. Trading Option Greeks Ebook

The second information that the options delta provides is the percentage change that an option trader would expect of an option position. This means that the delta would determine the percentage change in the options price movement in relation to the corresponding change in the price of the underlying stock. For example, an option with a delta value of 0. 60 will move 60% of every one-point movement of the underlying stock. If the underlying stock moves $1. 00, then the option would move $0. 60. So if an option has a delta value of 0. 90, the option would move $0. 90 on every $1. 00 movement in the underlying stock; I guess you get the point.

The last important information that the options delta can provide is the hedge ratio, which is the amount of deltas needed to properly hedge a particular trading position. For example, an investor who wants to implement a delta-neutral strategy may buy up 100 shares of the underlying stock and hedge the position with 2 nos. of at-the-money put option which have a delta value of around 0. 50 each. Since the underlying stock has a delta of 1. 00 and the delta value of the 2 put options would add up to the delta value 1. 00 too, this would thus establish a delta-neutral trading position.

As mentioned earlier, the options delta is an important component of the the options greeks which could tell an options investor how to determine the likely price movement behavior of the options in relation to the corresponding price action of the underlying stock. The delta basically determines the percentage chance, the percentage change and the hedge ratio requirement of an option trading position. Thus, the options trader is advised to take a look at this important component of the options greeks the next time he or she make a options trading decision. Trading Option Greeks Ebook