Option Trading: Delta

Posted on February 17th, 2010 admin No Comments

Delta is the amount an option price will move either up or down for a given change in the underlying share price. A deep out-of-the-money call option has a delta of 0, while an at-the-money call has a delta of approximately 0.5 and a deep in-the-money call has a delta of 1. This is the same with a put option but the values are negative.

This diagram shows that as the bought call option moves to at-the-money the delta accelerates compared to when the option is deep in or out of the money.

For example if I had a bought call option with a delta of 0.6, for every $1 increase in share price the option premium should increase approximately 60 cents. This is a guide only as the delta is not constant; it varies when the share price moves as demonstrated above.


To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

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Option Greeks

Posted on February 16th, 2010 admin No Comments

The “Greeks” in options trading is known as a way to measure the sensitivity of an option price to changes in its parameters. The Greeks can help option traders to better understand the potential risk and reward of an option position. However, it is important to note that the numbers given for each of the Greeks are strictly theoretical, as they are only projections based on mathematical models.

  • Delta: is a measure of the change in the option price resulting from a change in the underlying stock price.
  • Gamma: is a measure the rate of change of delta due to a one-point change in the price of the underlying stock.
  • Theta: is a measure of the rate of decline of an option’s time value resulting from the passage of time known as time decay.
  • Vega: is a measure of the sensitivity of an option’s price to changes in Implied Volatility (IV).
  • Rho: is a measure of the change in an option’s price due to a change in interest rate. If interest rates increase this will mean that the call options value increases and the put options value decreases.


To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

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Covered Calls – Strategy Risks

Posted on February 9th, 2010 admin No Comments

Share Price Risk

The share price risk is the same risk as owning the shares. There is a potential fall in the share price there is potentially a risk of the cost of the shares less option premium received from selling calls. To avoid this substantial risk you can buy put options (a form of insurance) to protect your share portfolio.

Exercise Risk

There is a risk of unwanted option exercise when you are forced to sell the shares. This can be avoided by watching the delta. If the delta is -1 then there is a high risk of being exercised. To avoid exercise you buy back the sold option and sell an option for the following month. This can be done for a credit. The main reason to avoid exercise is when you have sold a call below your breakeven level.

To learn more about The Covered Call or The Buy – Write Option Strategies please request the Covered Calls eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

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