AGAIG The Greeks Delta In ThinkOrSwim Explained

[csricksdds]

The Delta Greek is a must know for all traders​

DELTA – Let’s take a look at Delta

Delta measures how much the price an option is expected to rise/fall for each $1 change up/down in price of the underlying stock (ETF). It is expected to move approximately 50 cents in option price for each one dollar move in stock (ETF) price.

Think of Delta’s as a Dollar Bill lying on its side. The middle of the dollar bill represents the current stock (ETF) price. Current stock (ETF) price is then the 50 cents level of the dollar bill and option price will rise on the Call Side in value if stock (ETF) price moves up, or down in value on the Call side if stock (ETF) price drops in value.

The Put side is just the opposite although the midpoint 50 cents (current stock (ETF) price is the same. The put side option price will rise in value as stock (ETF) price rises, or down in value if the stock (ETF) moves up in price.

The reason current price is the 50 cent level of the dollar bill is because the market stock (ETF) price is “neutral” and the market does not pre-suppose movement in either direction.

You will need other indicators such as AsGoodAsItGets BEST TRADING CHART SET UP
https://usethinkscript.com/threads/agaig-best-trading-chart-setup-for-thinkorswim.18436
to help determine direction and movement of the underlying.

What are some ways to use Delta?

The 50 cent level also represents the 50% level of stock (ETF) price and percentage will rise/fall depending on the direction the stock (ETF) is moving. The 50% level means the stock has a 50% chance of closing at that level at the traded option expiration.

A 40% on the Call side means the stock (ETF) has a 40% chance of being ITM (In-The-Money) at the expiration chosen. Conversely it also means there is a 60% chance it will expire OTM (Outside-The-Money).

A 40% Delta on the Put side means the 40 Delta Put has a 40% chance of being ITM (In-The_Money) at expiration. Conversely it also tells you that there is a 60% chance that it will be OTM (Out-Of-The-Money) at option expiration.

Delta then is a measure of the risk for the trade you are taking whether buying or selling an option (we do not advise selling options except as a spread for the inexperienced trader). Buying an option limits your risk to the amount paid for the option.

Some individual’s trade options ITM (In-The_Money) greater than 50% levels (maybe 55%+) in order to lessen THETA DECAY which I will talk about in my next tutor post.

 

[jhorton56]

If you're putting on a basic vertical spread, to get the total delta of the position, do you add the deltas of the legs together? Or subtract one from the other?

 

[csricksdds]

If you're putting on a basic vertical spread, to get the total delta of the position, do you add the deltas of the legs together? Or subtract one from the other?

Good question - I think the total working delta at open would be to add the delta’s together and divide by two? However the short position will theta decay faster than the long position in a debit spread. It’s best to have the long position ATM (or best ITM) and the short OTM for the best Theta Decay (that is if direction is correct)

 

[jhorton56]

I'll research further and come back if I find anything dispositive.

 

[csricksdds]

I'll research further and come back if I find anything dispositive.

If you do please post it. Methinks the delta’s will move in unison as direction changes or hopefully moves in the direction intended? You just want the long position to gain in value and the short to decrease in value.