Weekly Options Delta – What You Need To Know

price movement

If you have traded options before then you are probably already familiar with options Greeks (Delta, Gamma, Theta, Vega). These “Greeks” are how investors evaluate various options and how many professionals managing their options portfolios. One of the most popular Greeks is “Delta”, which we will discuss in this post.

Understanding Options Delta

Delta measures how much an option will move in relation to the underlying security. Example: 1 call option on XYZ stock with .50 delta means it will move $0.50 cents for every $1 move in XYZ stock. The farther in the money an option is, then the higher the delta because it is a higher likelihood of expiring in the money.

An option at the money(option strike price at the current market price) will have a delta around .50 because it has a 50%/50% chance on if the stock will move up or down.

An out of the money options which is most common with option sellers(option income traders) will usually have a low delta because the options have a likelihood of expiring out of the money and out of money option premiums are all time value.

Is Delta Relevant to Weekly Options ?

The importance of delta is that many times people who sell options want low delta so that short option will not move as much with the underlying stock allowing the option seller to collect time decay on the short options.

As options get closer to expiration the delta can change much more rapidly with changes of the underlying stock price.

The reason delta is more sensitive near expiration is because the market is pricing in whether or not they will expire out of the money and become worthless.

If a stock jumps in price and you were short an out of the money call, then that calls delta will increase because the call option is now closer to being in the money.

Options that are in the money will expire with delta at 1 as they move dollar for dollar with the underlying stock.

If you have a short option near the money and nearing expiration then the delta on that short option will rapidly move on you if it moves in the money.

This volatility with delta near expiration week is why many traders who trade monthly options will roll or adjust positions if they have short option anywhere near the money as the changes in delta can happen so rapidly in expiration week.

Since weekly options have such short time horizon and trade like expiration week, the delta on them can move rapidly if the strike prices on your options are anywhere near the money(current stock market price). This is why delta is used as much for a position management strategy for weekly options as it is for traditional monthly options.

It is better to approach weekly options based on technical support resistance of the underlying stock for determining strike prices than worry as much about the delta of each option because delta will be moving all over the place with weeklies.

Generally the more important Greeks that investors pay attention to for weekly options are:

  1. Vega (understanding what volatility that is priced in your options)
  2. Theta (time decay in premium value each day)

–> Visit our comprehensive Weekly Options trading post

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