Newb Question
- Thread starter Corso482
- Start date
However if you don't have a math background and your head is swimming with deltas kappas sigmas and pi, you can take a look at my first answer 
The Delta is approximately the percentage in decimal format that the option moves in relation to the underlying.
For example:
An option that has a Delta of .20 means that the option should either drop or rise 20 % or 20 cents for a 1 dollar move.
Bear in mind that the delta can and will change dramatically if you are close to expiration and the option is near or slightly out of the money.
Bear also in mind that if an out-of-the-money option has several weeks left until it expires and the underlying's volatility suddenly goes from very low and quiet to sudden violent whipsaws, the delta will change to a higher percentage or number.
The market makers really run the show here. When there is demand for options they jack the price. When the options are looking bad as far as finishing in the money, they try to lower the bid/ask spread and take advantage of disillusioned holders.
If you want to find the delta of an option go to www.cboe.com or www.ivolatility.com
www.optionxpress.com may also be able to help you. They aren't a bad options broker as well if you are in need, especially if you trade options spreads. They have alot of options features on the site and unlike most brokers accept spread orders on-line. If transactions costs are ever an issue because you are trading 1's and 2's at a time and the ticket charges are killing you, look at www.interactivebrokers.com for low transactions fees.
Hope this helps.
Good Luck to you. Options trading is a complex and frustrating game. When you trade the underlying, you move with the market. When you trade options, you are at the mercy of the market makers who can frustrate the help out of you.
For example:
An option that has a Delta of .20 means that the option should either drop or rise 20 % or 20 cents for a 1 dollar move.
Bear in mind that the delta can and will change dramatically if you are close to expiration and the option is near or slightly out of the money.
Bear also in mind that if an out-of-the-money option has several weeks left until it expires and the underlying's volatility suddenly goes from very low and quiet to sudden violent whipsaws, the delta will change to a higher percentage or number.
The market makers really run the show here. When there is demand for options they jack the price. When the options are looking bad as far as finishing in the money, they try to lower the bid/ask spread and take advantage of disillusioned holders.
If you want to find the delta of an option go to www.cboe.com or www.ivolatility.com
www.optionxpress.com may also be able to help you. They aren't a bad options broker as well if you are in need, especially if you trade options spreads. They have alot of options features on the site and unlike most brokers accept spread orders on-line. If transactions costs are ever an issue because you are trading 1's and 2's at a time and the ticket charges are killing you, look at www.interactivebrokers.com for low transactions fees.
Hope this helps.
Good Luck to you. Options trading is a complex and frustrating game. When you trade the underlying, you move with the market. When you trade options, you are at the mercy of the market makers who can frustrate the help out of you.
Thanks StrayCat. I'm not really looking to trade options. I'm just looking into hedging my equity positions with them. So I was wondering how much of a given option I would need to hedge a given equity. I suppose the answer lies somewhere in this Greek hell.
I was thinking that if I trade equities that are highly correlated with the Dow, I could just buy DIA options to hedge. I was trying to figure out how many/which DIA contracts I should buy for each equity position. I suppose a fixed dollar amount is simplistic, like $200 worth of calls/puts for every $20,000 equity position.
Oh, by the way, I'm talking about for swing trading.
If you think the market is definitely going to retrace and you don't want to sell your positions because of cap gains or whatever, Sell some deep in the money calls and buy them in after the market drops.
If you think the market might move up a little more, sell some out of the money calls during a nice strong rally. If the market pulls in or falls, you'll have a little hedge on to cushion some of the downside blow.
The deeper the reaction, the more you'll wish that you sold more deep in the money calls. If the market goes up you'll wish you sold less and further out of the money calls.
You have to judge it yourself. No mathematical formula will help you with an animal like the stock market.
Good Luck.
If you think the market might move up a little more, sell some out of the money calls during a nice strong rally. If the market pulls in or falls, you'll have a little hedge on to cushion some of the downside blow.
The deeper the reaction, the more you'll wish that you sold more deep in the money calls. If the market goes up you'll wish you sold less and further out of the money calls.
You have to judge it yourself. No mathematical formula will help you with an animal like the stock market.
Good Luck.
Interesting choice of greeks...
I am a Kap Sig alumn, but I think that's as close as that gets to trading.
What happened to Delta, Gamma, Theta, Vega, Rho?
Or for that matter Jackie, Jermaine, Marlon, Mike and Tito?
I am a Kap Sig alumn, but I think that's as close as that gets to trading.
What happened to Delta, Gamma, Theta, Vega, Rho?
Or for that matter Jackie, Jermaine, Marlon, Mike and Tito?
Quote from hii a_ooiioo_a:
However if you don't have a math background and your head is swimming with deltas kappas sigmas and pi, you can take a look at my first answer
corso,
Hedging your equity positions?? Afraid your size will move the market when you cut your losses??
Otherwise your only reason for doing that is if you want to hedge a portfolio.
If you merely want to hedge your swing trading losses. Your best "hedge" would be to give-up trading.
Hedging your equity positions?? Afraid your size will move the market when you cut your losses??
Otherwise your only reason for doing that is if you want to hedge a portfolio.
If you merely want to hedge your swing trading losses. Your best "hedge" would be to give-up trading.
