Full index of posts »
StockTalks

6 Points To Remember About Uncovered Puts http://seekingalpha.com/p/24tg9 Dec 23, 2014

Higher Than Average Net Returns Using “Relative Correlation” http://seekingalpha.com/p/24dsn Dec 17, 2014

Flaws In The Current Ratio http://seekingalpha.com/p/24a95 Dec 16, 2014
Latest Comments
 Thomsett on Options: Synthetic Long Stock And How Options Can Be Leveraged Options  synthetic long stock
 Thomsett on Covered Calls – The Key, Strike Proximity To Price Covered Calls – The Key, Strike Proximity To Price
 Thomsett on Options Trading: What Constitutes Low Risk? Options Trading and Risk
 Thomsett on SelfDiscipline Risk, A Risk Every Investor Faces Selfdiscipline risk
 Thomsett on Buy And Hold — Good Or Bad? Buy and hold  good or bad?
 Thomsett on Current Ratio And Dividends Per Share: Are These Reliable Indicators? Reliable fundamental indicators
Most Commented
 Is "buy and hold" the smartest investing strategy? ( Comments)
 Please Come To A Free Webinar About The Covered Call  This Wednesday 4:30 EST ( Comments)
 The Ratio Calendar Spread  Options With Creativity ( Comments)
 Problems with BlackScholes ( Comments)
 The Dividend Collar  DoubleDigit Returns And Low Risk Combined In One Strategy ( Comments)
Delta  A Timing Device For Options Trading 2 comments
Among the "Greeks" the most valuable for options trading (and specifically for timing of trades) is the delta.
This indicator compares likely change in option value relative to change in the value of the underlying. The higher the delta level, the more likely the premium will move more than movement in the same direction for the underlying. And of course, a lower delta reveals a less responsive likely reaction among option contracts, to movement in the underlying.
Because delta measures reaction of premium to underlying, it can be viewed as a reliable test of extrinsic value (implied volatility). Because of this, as you would expect, the delta strength or weakness is going to vary based on two factors: proximity of strike to current underlying price, and time remaining until expiration. The closer underlying price is to strike, the m ore responsively you expect IV to behave. The same is true for time to expiration; very longterm options are going to be less responsible than those closer to expiration. However, these two factors  time and proximity  interact to define the delta level.
The range of delta varies between a high of +1 and a low of 1. Call delta is always expressed as a positive attribute, and put delta is always expressed as a negative. Long call delta is a positive factor if the underlying price is rising, but for short calls, it is a negative factor. For long puts, delta is a negative factor if the underlying price is declining, and for short puts, delta is a positive factor if the underlying price rises.
Calculation of delta is not necessary as several free online calculators are available. The Chicago board Options Exchange (NASDAQ:CBOE) provides free calculations for all of the Greeks. Go to CBOE Option calculator to find CBOE's calculator.
To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at ThomsettOptions.com where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at ThomsettOptions.com to learn more. As a new member, if you buy a oneyear subscription, you also get a free copy of one of my books, including this new one just released.
I also offer a weekly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. All it requires is your email address. Join at Weekly Newsletter I look forward to having you as a subscriber.
Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.
Share this Instablog with a colleague