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Stock
Option Delta
The delta of an option is how much the value of the option will go
up if the underlying stock goes up one dollar. An stock
option's delta can be an very significant factor in deciding which
stock option to buy.
Example, assume that you
have $5,000 and you think the
QQQ will go up within a couple weeks (prior to Expiration
Friday). Current QQQ Price = $34.60. Here are you
choices for call options:
|
Option
Price |
Options
Bought |
Price
Paid |
Delta |
Net
Delta |
| 1-month
$35 call = |
$
0.70 |
71 |
$ 4,970 |
0.4472 |
31.75 |
| 1-month
$36 call = |
$
0.30 |
166 |
$ 4,980 |
0.2511 |
41.68 |
| 2-month
$35 call = |
$
1.15 |
43 |
$ 4,945 |
0.4834 |
20.79 |
| 2-month
$36 call = |
$
0.65 |
76 |
$ 4,940 |
0.3528 |
26.81 |
The
1-month 26 call has the highest delta, so if you expect an immediate
jump in the QQQ it would be the best of the four options listed to
buy. However, since the QQQ is trading at $34.60, it may not
go above $36 by the 1-month expiration date, making the call
worthless. If it were me, I'd buy the 1-month $35 call.
The net delta is still 50% higher than the 2-month $35 call, and the
$1 lower strike price makes it a safer bet.
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