Spitznagel / Delta question...

[RubiconTrading]

can anyone here possibly help me out with this?

In Spitz's first book, Dao of Capital, he gives the following example of risk mitigation:

"2-month 0.5 delta puts on the S&P Composite Index (approximately 30 percent out of the money"

When I look up option chains in Schwab, options such as the above have delta's far less than .5, more in the .2 or less range

let me know your thoughts...

PS - looked up options like this a year ago and saw similar #s, so do not believe recent market vol is the reason

 

[stepandfetchit]

Knee jerk response: Since book was 2013, I look at June 4 2012 closing prices as a ball-park.
Using TOS thinkback: 1278.18 (Spot)/960 == 1.33 ish.

I have not looked further, just noting what I see.

 

[RubiconTrading]

Knee jerk response: Since book was 2013, I look at June 4 2012 closing prices as a ball-park.
Using TOS thinkback: 1278.18 (Spot)/960 == 1.33 ish.View attachment 286137 I have not looked further, just noting what I see.

great response. the next line in the book is "in the case of a 40 percent implied volatility"

so looked up current stats for put, 30% OTM and got this:

IV is consistent w/ Spitz's example, but how come the delta is SO massively different then decade ago (.02 vs .50)???

 

[newwurldmn]

I don’t think he was suggest .5 (as in 50). I think he’s saying .5 as is .005 if .50 is atm.

 

[stepandfetchit]

I misread and incorrectly picked the -0.05 delta. apparently the -0.005 delta was intended as newwurldm points out.

 

[RubiconTrading]

I misread and incorrectly picked the -0.05 delta. apparently the -0.005 delta was intended as newwurldm points out.

I missed that too. So then the real question, since I am not experienced in options, what is the real world difference of a 30% OTM Put option w/ Delta of -.05 (2013) vs -.02 (2022) ??

 

[stepandfetchit]

I have not seen that book. The distance of a strike from Spot price for a specific delta is also impacted by skew.

 

[RubiconTrading]

I have not seen that book. The distance of a strike from Spot price for a specific delta is also impacted by skew.

well i meant IF i owned two 30% OTM Put options, one w/ a Delta of -.05 and the other -.02, and after purchase the underlying dropped by 15% - would there be a material difference in how the two acted or no?

 

[stepandfetchit]

This may be TMI, but perhaps it may help. I looked at recent SPX data with different IV to provide view of delta with respect to Moneyness. Zipped HTML file with 2 scatter plots. Hover mouse over areas of interest for detail. -- OTM% should not be mistaken for delta.

 

[RubiconTrading]

This may be TMI, but perhaps it may help. I looked at recent SPX data with different IV to provide view of delta with respect to Moneyness. Zipped HTML file with 2 scatter plots. Hover mouse over areas of interest for detail. -- OTM% should not be mistaken for delta.

well that is pretty friggin cool, thanks

guess i just need to track real time prices to see how different deltas respond to moves in the underlying...