top of page
Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Greeks
Beginner, Advanced
Delta
It measures the sensitivity of an option to the movement of the underlying asset.
Detail
Delta indicates how much the option price will change if the price of the underlying asset changes by 1 USD. For example, delta 0.50 means that if the stock rises by $1, the option will increase in price by $0.50. Let's not forget that in the case of stock options, one option, or one option contract, represents 100 shares. So the option price and its change need to be multiplied by 100. Delta also indicates the approximate probability that the option will expire ITM. For example, delta 0.30 means about a 30% chance that the option will expire ITM.
Delta measures how much the option price will change when the underlying price changes. Call options have a delta of 0 to 1, put options have a delta of 0 to -1. Delta also shows the probability that the option will end ITM. An option with a delta of 0.50 is ATM, a high ITM option can have a delta of up to 0.90 (call) or -0.90 (put). Important for risk management and position creation.
Optimal conditions
For traders who want to manage exposure to underlying movements (e.g. delta-neutral strategy). To determine the probability of an option's success.
Max profit
It does not determine directly, it depends on the chosen option strategy.
Max loss
It does not determine directly, it depends on the chosen option strategy.
Risks
High delta options react significantly to the movement of the underlying. Low delta options mean a low probability of ITM and therefore a lower probability for the buyer, a higher probability of profit for the writer.
Greeks
A basic Greek letter, influenced by time to expiration, IV, and strike distance. Delta changes with underlying movement and as expiration approaches.
Variations
Delta hedging, synthetic delta (combination of options and stocks to achieve the desired delta).
Usage example
Buying a call option with a delta of 0.30 on the stock's growth (e.g. speculation). Selling a call option with a delta of -0.10 as part of a debit spread. The overall delta value of the position is thus set to 20 and will represent a change in the spread price of 20 USD for a movement of 1 USD in the underlying.
DTE
Delta changes over time – approaching expiration increases the absolute value of delta for ITM/OTM options (gamma effect).
IV (implied volatility)
Higher IV can affect the value of delta, but the direct relationship is limited. Delta is more responsive to the movement of the underlying than to IV.
Premium
Options with a higher delta (closer to ITM) have a higher premium, OTM options with a low delta have a cheaper premium.
Margin
Listing high-delta options means higher risk and higher margin (e.g. a short naked call delta 0.40 will be more expensive on margin than a delta 0.10).
Notes
Delta is essential for every option position. It is important to monitor it for proper strategy setup. Be careful of the change in delta over time (gamma effect).
Tags
delta, Greek letters, option sensitivity, ITM probability, hedge ratio
bottom of page