Strategy Post - 3/18/2024 - The Greeks of Options: What are they? (1/5 in the Greeks Series)

-

Hi readers, I hope you are all doing well! In this post, I will be giving you a small piece of exposure to the Greeks of options. Understanding what the Greeks are will definitely help an options trader make great adjustments to positions, and understanding how the Greeks work together will result in an options trader being very fundamentally sound and very profitable.

This is the first post in a 5-post series, where each post will cover one of the 5 Greeks of Options. Today's post will cover what Delta is, I hope you enjoy!


First, here is some background on what Greeks are in Options trading. Greeks are simply types of risk measures that options have. Greeks also measure changes in options price, time value, volatility, and more in result of any change in the underlying stock. 


The Greek we will cover today is called Delta. What is Delta? Delta measures how much the price of an option will change due to a $1 change in the underlying stock. The deltas for long call options and short put options are always in between 0 to 1. Inversely, the deltas for long put options and short call options are always in between 0 to -1. 


Let's say I purchase a long call on QQQ, at a strike price of $500, and QQQ is currently trading at $500. Let's also assume that the delta for this option is 0.5. This means that the price of this option will change by $0.5 for every $1 move in QQQ, and the directions will match. What I mean by this is that if QQQ goes UP by a dollar, the price of the $500 call will go UP too, by $0.5. Similarly, if QQQ goes down by a dollar, the price of the call option will also go down. This also makes logical sense. Why? Let's take a look.


If QQQ goes up by any amount, the call option we bought will be more valuable, as it gets increasingly more profitable as QQQ moves up. If the call option is valuable, then the price of the option itself would increase as it is more valuable and is profiting already. This is why deep ITM (In the Money) options are always very expensive. 

Popular posts from this blog

Trade Talk Post (Weekly Recap) - 2/18/2024

-
Image
Hi Readers! In this Trade Talk post, I will be talking about what changes, such as new positions and adjustments, have happened in the past week in my options trading portfolio. Here is the update: Monday (2/12/2024):  On Monday, the first thing I did was close out of the AMD position, which was in profit by a couple hundred dollars! I also opened two new positions, a long ATM straddle on SPY @ $500 strike price and a long calendar/time call spread on QQQ @ $435 strike price. The SPY straddle was in the March 01 expiration cycle, and the QQQ time spread was in the March 01 and February 23 expiration cycles. Wednesday (2/14/2024): On Wednesday, I made a lot of adjustments on the QQQ and SPY positions. First, since QQQ had dipped, the short calls were way out of the money and in profit and the long calls were not profiting. So, to tighten the spread, I closed out of the long $435 calls and bought the $432 calls. In case QQQ made a huge move upwards, then I could make a little extra profi
Read more
-
Image
  Hi readers! This is currently my portfolio. Currently, I am learning how to trade options, and I am using an online trading simulator for options and stocks, called TradeStation. As shown in the picture, I have a call ratio spread on for SPDR, and a put ratio spread on for QQQ. Both of these spreads are set to expire on July 28th. As of right now, both spreads are Out of the Money (OTM). Both spreads are losing money right now. I am surprised, as one week after I made these spreads, both spreads were in the money and profiting. Right now, I have to do something to increase my deltas for both spreads, as both stocks went up. I am thinking of buying some call options to increase my deltas. I can also purchase short puts instead. Also, currently my portfolio has $2,030,512 in cash.  In the next post, I will be talking about that spread. Thanks! 
Read more