THREAD ON DELTA (The most important GREEK)

Many traders don't indulge in understanding GREEKS because they think they are very complicated.

There are 4 primary greeks:

Delta
Gamma
Theta
Vega

In my experience, understanding DELTA is enough to take benefit of greeks.(1/n)
Delta measures the rate of change of options price based on the directional movement of the underlying.

So this means we can know in advance (theoretically) how much an option will move with the underlying & so we can prepare our strategies accordingly. (2/n)
Value of delta varies between 0 & 1 for calls and -1 & 0 for puts. This figure tells how much an option price will change, when the underlying moves 1 point. So example a delta of .2 of call indicates that for every 1 point change in the underlying, the price will move .2 (3/n)
For option writers who want to trade in neutral strategies like straddle, strangle, ratios, calendar etc, delta can be very helpful. So be it any complex strategy, knowing the NET DELTA can give you an idea of how your strategy will perform in different scenarios. (4/n)
Net delta is just the sum of the deltas of all the bull options (call+ & put-) minus the bear options (call- & put+).

So if we can track this, we will always be in the know of how much exposed our position is. It makes it easier then to adjust our position. (5/n)
Even for directional option traders trading in risk defined strategies, it can be very useful because the net delta can give a fair idea of how much risk a trader is taking. Same goes for deep otm naked option sellers. It can tell exactly how much delta they are exposed to. (6/n)
We can also know if an option is spiking or falling through delta. So for example a call option has .4 delta & nifty moves 100 points. If it moves more than 40 points then the call is spiking & if it has moved only 30 points then it is falling. (7/n)
Even experienced option traders get confused of whether options have increased or decreased when underlying moves in high volatile moves. So with the help of this we can form a view of whether the premiums are falling or not. (8/n)
With options, premiums aren't everything. There is this crutial factor of distance of strike from the spot.
That's where it becomes complicated & delta takes that into account. Many times calls & puts have same premiums, but the distance from spot is different. (9/n)
Many traders think that their position is neutral because the premiums in both sides is equal, but infact it's not. So if the underlying moves towards the option which is closer to the spot, then the same priced option will move way faster than the other option. (10/n)
So a trader just needs to focus on the net delta of his position & how will he manage it if it breaches whatever predefined level. This will allow him to focus more on other important stuff, while the logistics of his position is objectively taken care of. (11/n)
Will make a thread on Gamma (the 2nd most important greek & more difficult to master) in the future, but if you follow delta for few months & actively manage it, you automatically can get the grasp of other greeks as well. (12/n)

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More from @SarangSood

13 Feb
CATEGORY OF DAYS FOR OPTION SELLERS

This thread is about how premiums behave in different setups. Though identifying them early takes years of practice, being mindful of what's happening in the present can give us an edge. So we can be better prepared with our strategies.(1/n)
1) Gentle decay in premiums/ less delta moves

Such days are pure delight for option sellers. The adjustment cost is less because of less delta moves, so vega realisation is more. Usually such days are plentiful when Vix is below 15. (2/n)
2) Decay with High delta moves

Such days are common when Vix is high. Since delta moves are more, vega realisation is less because of high adjustment cost. Those who don't adjust their positions usually miss out on it's profit potential. (3/n)
Read 9 tweets
30 Jan
Hello! Welcome to my profile.

This is Master thread of all the useful tweets (imo) that i have shared in the past. Going through them may provide some knowledge on options, volatility, greeks & trading psychology. Will keep updating in the future.

Thanks for following 🙏

👇👇
Read 22 tweets
16 Jan
Friday's specially after the introduction of weeklies have become very unpredictable for option sellers IMO. Usually I'm able to forsee a volatile move & if not then through hindsight analysis I'm able to understand how a spike manifested, which ultimately adds to my system.(1/n)
But days like 14th Aug'20 when everything is going super fine & all of a sudden within seconds huge vol spike occurs is baffling. There are many such Friday's before when such moves have manifested without any prior sign of volatility (according to me). (2/n)
What i have understood is that since current weekly has max liquidity & Friday is the first day of a new series, the positions are not mature enough. So the operator can afford to shake up things. I haven't seen such spikes coming on Tue-Thus without prior signal. (3/n)
Read 7 tweets
9 Jan
FINDING EDGE IN OPTIONS

24/08/15: Nifty gap down 250 points & another 250 after that. Previous few months return gone, but since I'm quick to take my losses, was saved from ruin. Before that my only edge in option selling was adjustments & my forever edge of following PA. (1/n)
I soon realised that theta decay with sound adjustments is not an edge, which i earlier thought was & which gave me good returns over the years. After that i went deeper in understanding volatility behaviour, how/where it manifests & all the discrepancies in option chain. (2/n)
With finding edge in logistics i mean how to keep the greeks in check, SL in place & optimum ways of adjustments with minimum slippages. So the main aim here is to write theta without following vol behaviour & having any actual knowledge of what's going on in the markets. (3/n)
Read 9 tweets
12 Dec 20
THREAD ON IRONFLY

These days the most preferred strategy for option sellers due to improved margins is IRONFLY. It's essentially a short straddle with long strangle. Long strangle acting as 'WINGS', which help in capping the unlimited risk associated with a short straddle.(1/n)
You can also view the position as a combination of Cal & Put credit spreads, if that makes it more easy for you.

There are 3 important things to understand while trading this strategy:

1) Initial size of the Wings
2) Risk Management
3) Adjustments

(2/n)
Since we are selling an ATM straddle, the 1st question is how far our wings should be? Ideally i sell .50 delta straddle & buy .20 or .10 OTM strangle, depending on my view on volatility. So the distance of wings depends on the IV setup. Higher the IVs, greater the distance.(3/n)
Read 14 tweets
29 Nov 20
THREAD ON RATIO SPREADS

Whenever vol is on the rise, my go to strategy is always RS. Apart from Jan, Feb & Jul this year when i traded in straddle, 2020 has all been about RS. It's the flexibility of the strategy to trade in both direction & non-direction which i like.(1/n)
RS is buying one strike with high delta & selling more than 1 lot of lesser delta. Since i do weeklies i prefer buying ATM & selling OTMs on Fri, Mon, Tues as the premiums in OTM options are high. For Wed, Thus i buy ITM & sell ATMs.(2/n)
To make up my decision of which leg (cal or put) to initiate, i look in the option chain on which side the OTMs are not spiking. That's likely the side whose OTMs will melt faster or not increase even if market moves towards them.(3/n)
Read 8 tweets

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