Quantcast
  1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Meaning of delta options

Discussion in 'Options' started by gtboy, May 31, 2015.

  1. gtboy

    gtboy New Member

    Hi I am new to options trading and am trying to understand the meaning of this phrase
    ' sell 10 delta calls '
    and
    'No more than 2 standard deviation '
    i am thinking delta as a number between 1 to -1 and is the option price movement relative to the stock price.
    SD i just cant understand or find a proper explanation in terms of option trading.

    Could some1 please clarify these two phrases.

    Thanks in advance :)
    Al
     
  2. tom

    tom Administrator Staff Member

    Hi Al,
    Delta is one of the option greeks. Here's a good definition of Delta:
    http://www.optionseducation.org/str...ncepts/understanding_option_greeks/delta.html
    Your broker should have delta available to you in the option chain display.
    Delta is roughly the percentage chance an option has of expiring in the money. A 10 delta has roughly a 10% chance of expiring in the money for example. Sell the 10 delta calls means to sell calls where the delta is 10 or below. Normally delta is shown as a number between 0 and 1 so delta might be 0.10 on your broker's display. Since option contracts are for 100 shares of the underlying normally, we multiply 0.10 x 100 = 10.

    Standard Deviation calculations are based on several pieces of information:
    - The underlying price
    - The time to expiration
    - The volatility (normally of the at-the-money call or put for the expiration you are evaluating)
    These can be entered into this calculator:
    https://members.capitaldiscussions.com/go/c.standard-deviation-calculator

    If you are searching for the strike "no more than two standard deviations", you would find the strikes that are inside of the two standard deviation range. Here's an example:
    2015-05-31_13-07-32.jpg
    You would select a strike between 85 and 115 in this example to stay within two standard deviations.

    Let me know if that clears it up or if you need any more help.

    Welcome!

    Tom
     
  3. gtboy

    gtboy New Member

    thank you so much. I understand now. regards:)
     

Share This Page