Delta Trading
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TRADE (US stock options)
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DELTA (+ or -)
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COMMENT
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Buy 1 share
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+1
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Buying a share has a delta of +1
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Sell 1 share
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-1
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selling a share has a delta of -1
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Buy ATM call
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+50
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Why +50? Because 1 stock option contract represents 100 shares. So 100 * 0.5 = +50
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Buy Call
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+
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A long call always has a positive delta
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Sell ATM call
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-50
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Why -50? Because 1 stock option contract represents 100 shares. So 100 * -0.5 = -50
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Sell Call
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-
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A short call always has a negative delta
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Buy ATM put
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-50
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Why -50? Because 1 stock option contract represents 100 shares. So 100 * -0.5 = -50
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Sell ATM put
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+50
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Why +50? Because 1 stock option contract represents 100 shares. So 100 * 0.5 = +50
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Buy Put
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-
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A long put always has a negative delta
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Sell Put
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+
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A short put always has a positive delta
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ATM Straddle
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0
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The long call delta and long put delta effectively cancel each other out
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ATM Strangle
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0
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The long call delta and long put delta effectively cancel each other out
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Bull spreads
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+
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With a bull call spread, the long call has a higher delta than the short call. With a bull put spread, the short put has a higher negative delta than the long put, but remember that because you're selling it, 2 minuses make a plus.
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Bear spreads
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-
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With a bear call spread, the short call has a higher delta than the long call, but the delta is negative because you're selling it. With a bear put spread, the long put has a higher negative delta than the short put.
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Example: (bull call spread)
XYZ = $100.00
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Buy 10 Jan 100c
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Delta =
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+500
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Sell 10 Jan 105c
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Delta =
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-470
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(say)
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Hedge Ratio =
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+30
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