Delta? what's better?

M

motterpaul

What is more likely to give you more return, a single option at the money with a Delta of 50, or buying two lower priced options with a delta of 25 for a combined Delta of 50?

Is delta delta, or does where it comes from make a difference?
 
The answer is in the details of your expectations. You can get 50 deltas simply by buying 50 shares of stock - but 50 shares is 50 shares forever unless you adjust. Options are dynamic and in a sense self-adjusting. So the simple answer would lie in what is your expectation about price and time. You didn't buy the stock outright because you wanted leverage - limited risk - and the dynamic(Gamma) nature of their adjusting delta. Model your expected outcomes as to price and time and you will observe clear differences. One 50 delta option can only go to a 100 deltas on the upside - two options totaling 50 deltas can grow to a 200 delta position.
So the answer is - it depends on your expectations. If you want to delve into it more get a pricing model and play with it - model your possible outcomes. Your broker most likely offers one or the are dozens on the net. There are other factors that come into play, but model it and you see that under some expectations one choice may be superior. BTW you will learn a great deal when you begin to model and alter the vols.
 
Depends on many factors: overall IV, steepness of skew (difference in IVs between the 50d and 25d points), time to maturity, and the 2nd order greek characteristics of the 25d options - Vanna (delta change from change in vol) and charm (delta decay from passage of time).

The best thing to do is observe a 1x2 put or call spread - 1 50d call or put vs. 2 25d calls or puts, and see which leg performs better over time, during a major IV or skew move, and a large move in the underlying asset.

One example i could give you is if you bought 1 SPY/SPX 50d put and sold 2 25d puts (delta neutral), the 1 50d put would probably outperform the 2 25d puts on a slow break accompanied with a flattening skew. On the other hand, during a market meltdown correction, the 2 25d puts would explode much higher vs the 1 50d put due to a number of factors: massive IV increase, accelerating gamma, and positive vanna and volga...outweighing any skew flattening that may take place.
 
motterpaul said:
Thanks for the answers. Options are truly baffling, and never really respond as expected. There are just too many damn factors.
More...

No, not so many factors, just too poorly presented. :banghead:
These guys made a fair stab at "5 option basics in 5 minutes" and I tried to top 'em with "3 option basics in 3 minutes."
https://www.elitetrader.com/et/threads/5-basics-of-options-in-5-minutes.330524/#post-4818371
ONE DAY :rolleyes::confused:o_O, I will work the graphics in, with gamma vs time, theta vs time, etc. (Which you can google for a dizzying array of graphics, some of which might speak to you.)

But you're always balancing Time, Distance, and Vol. (And, buying and selling and putting and calling.... so there's 3x2x2 = 12 little pic-a-tures to keep in your brain......)
 
I have an options account, and the truth is I can't seem to find a basic strategy that allows me to risk a little and make a lot - except just plain outright buying (long) puts or calls.

When you two opposing legs they just cancel each other out. For example. I had call & a put for Beyond Meat, 230 call and 192.5 put. I nailed the put and the stock was down 30 points, so you would think it would be worth more than the call I sold. Wrong, it cost me more to get out of the call than I made on the put.

You can't be too close to expiration or else the premium decay will eat you alive even if you are in the money (Break even, I know), But I have also tried being on the other side of that (selling premium near exp.) and half the time the volatility increase fights that.

Where is the sweet spot where it is like trading stocks but just cheaper - without all the other BS that seems to defy logic?

The only good luck I have had lately is buying some puts & calls and getting earnings trades right. In Google the move of $130 made me profitable even though I did have another leg in there, and in Tesla I just had the single put.

Otherwise, like a Beyond Meat, even being right about the earnings call (negative delta) did not make me any money - too close to expiration, I guess.

Does anyone here have good options strategies that are actually fairly predictable or profitable?
 
motterpaul said:
I have an options account, and the truth is I can't seem to find a basic strategy that allows me to risk a little and make a lot - except just plain outright buying (long) puts or calls.

When you two opposing legs they just cancel each other out. For example. I had call & a put for Beyond Meat, 230 call and 192.5 put. I nailed the put and the stock was down 30 points, so you would think it would be worth more than the call I sold. Wrong, it cost me more to get out of the call than I made on the put.

You can't be too close to expiration or else the premium decay will eat you alive even if you are in the money (Break even, I know), But I have also tried being on the other side of that (selling premium near exp.) and half the time the volatility increase fights that.

Where is the sweet spot where it is like trading stocks but just cheaper - without all the other BS that seems to defy logic?

The only good luck I have had lately is buying some puts & calls and getting earnings trades right. In Google the move of $130 made me profitable even though I did have another leg in there, and in Tesla I just had the single put.

Otherwise, like a Beyond Meat, even being right about the earnings call (negative delta) did not make me any money - too close to expiration, I guess.

Does anyone here have good options strategies that are actually fairly predictable or profitable?
More...

You must have bought the strangle 192.5p/230c just before earnings. You got murdered on the implosion in implied volatility, and to a lesser extent the time decay. Volatility went from 125% pre-earnings to 75% post-earnings. Volatility dropped an insane 50%. You would have needed a much bigger move in the stock to make any money or just to scratch. You simply paid too much for those options @ 125% IV.

When vol gets that ridiculously high, you're better off selling premium. But for a scary stock like BYND, I would do a wider strangle range just to be a little on the safer side.
 
Thanks for this insight, yes I did buy just before earnings - the premiums on this have been really high. What you say is completely logical to me, but understanding how to play IV is tough because you can't really track changes in IV for a given stock. Actually, in the end I did pretty close to scratch, I paid a little more for the calls.

I am so used to trading stocks where there is no IV that I have no feel for how to factor it in.
 
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