Stock Options Greeks - The Delta, How To Trade Puts and Calls using Trends

This trading tutorial explains what Greeks are and how much important is their understanding for today’s financial investors and traders. The aim of this article is to show you how to read and utilize the Greek known as Delta.

How to place the most rewarding options strategies from scratch? Visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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Before getting in any options’ strategy you must know how to analyze the Greeks. They are mathematical indicators that bear on the price of options helping you to understand the direction of your trade and the impact of time and implied volatility on your options. You don’t need mathematical skills to understand how to calculate them. Many software can do this job for you. All you need is to know how to read Greeks to make better financial decisions.

Delta is the first Greek and considered, by many traders, the most important. It is a measure of how much the price of an option will change given a $1 change in the underlying stock. It is always a number between -1 and +1. Bullish options (long positions) have positive delta between 0 and +1, whilst bearish options (short positions) have negative delta between -1 and 0. It is essential to know that stocks have always delta equal to 1 if the stock raises and -1 if the stock drops. Having said that, the closer is the delta of options to 1 or -1, the highest will be the connection with the respective underlying security and, consequently, the impact of the stock movement on the option price.

Free Tutorials - Stocks, Options, ThinkorSwim and more.. Click Here!

The delta of options is different depending on the direction of your trade. So, if you:

Buy Call Options (long call - net debit); the delta is always positive and included between 0 and +1. It moves at its maximum speed around the strike price. If the option is deep OTM, delta is 0 or close to 0; whilst if the option is deep ITM, delta is 1 or close to 1.

Sell Call Options (short call - net credit); the delta is always negative and included between 0 and -1. It moves at its maximum rate around the strike price. If the option is deep ITM, delta is 0 or close to 0; whilst if the option is deep OTM, delta is -1 or close to -1.

Buy Put Options (short put - net debit); the delta is always negative and included between 0 and -1. It moves at its maximum rate around the strike price. If the option is deep OTM, delta is 0 or close to 0; whilst if the option is deep ITM, delta is -1 or close to -1.

Sell Put Options (long put - net credit); the delta is always positive and included between 0 and +1.It moves at its maximum speed around the strike price. If the option is deep ITM, delta is 0 or close to 0; whilst if the option is deep OTM, delta is 1 or close to 1.

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Do not forget to visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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The delta has substantially three meaning:

1. Trade Direction. If you are bullish (wish the market raises), the Delta will be positive; if you are bearish (wish the market drops), the Delta will be negative.
2. Trade Probability. The delta says the probability that your Option will be ITM (in-the-money) at expiration. If for instance, you are interested in buying a Put Option with Delta at 0.60; it means you will have 60% of chances your Option will expire ITM.
3. Price Management. The delta can give you an idea of the amount of money you will earn or lose as the stock move. For instance, let us suppose that with XYZ traded at $30 you are bearish and would like to buy a Put Option ITM whose strike is at $31. The Delta of this particular option is 0.60. This means that for any movement of $1 on the Stock, you option will earn $0.60 if the stock falls and lose $0.60 if the stock rises.

Then, the value of delta is different for options at-the-Money (ATM), in-the-Money (ITM) and out-of the-Money (OTM).Look at the tutorial: explanation of moneyness. When the strike price of the option is:

• At-the-money (ATM) or so, the delta will be around .50 for long call options and -0.50 for long put options.
• In-the-money (ITM), the delta will be between 0.50 and 1 for long call options and-0.50 and -1 for long put options.
• Out-of the-money (OTM), the delta will be between 0 and 0.50 for long call options and-0.50 and 0 for long put options.

Free Tutorials - Stocks, Options, ThinkorSwim and more.. Click Here!

In the next GroWithYou Trading Tutorial:

• How to set Greeks for Options Strategies;
• The Gamma - Definition;
• Understanding Gamma - Function and Relation with Delta;
• Understanding Gamma - Relation among Gamma, Vega and Theta.

Keep learning about Options Strategies and ThinkorSwim by going to: Stock Options Greeks - Gamma Explained and Relations with Delta.

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