Weekly Options – Delta
Many weekly options traders would consider Delta to be the most important ‘Greek’ in options.
Delta is a way to measure how much in value on option will change given a one point move in the underlying.
Weekly Options – Measuring Change
For example – if you were to purchase a weekly options put on IBM – and let’s say that IBM moved down in price by one dollar – the put option would NOT change in value by one dollar. It would certainly change in value – but that change would be LESS than the change in IBM – or in this case – it would be less than one dollar.
Exactly HOW much that weekly options value changes per dollar move in the underlying is exactly what Delta measures.
When you look at the Delta column in an option chain – you will see various numerical figures for each option that is listed for an underlying. What these figures are showing us is the Delta Value for each particular option – and these figures are showing the ‘percent’.
For example, if a particular weekly option on IBM has a Delta of 70 – this is telling us that for every dollar IBM moves – this particular option will change in value by 70% – or in the case where IBM moves one dollar – an option with a delta of 70 will change in value by 70 cents.
Weekly Options – The Greeks Working Together
Now what is important to understand is that while we can expect the value of that option to change in value by the amount shown in its delta – we must also take into consideration how the option ‘greeks’ play into this scenario.
For example – the other greeks – theta, and vega – can also affect the value of an option as the underlying price moves around – and these will all be working together – along with Delta – each potentially affecting and changing one another. So, even though the underlying may have moved exactly one dollar – and we owned an option that had a delta of 70 – at the end of the day it is possible that the other greeks could have played ‘their own part’ in the equation and it is entirely possible that the option might wind up actually changing in value by less than – or perhaps by MORE than – that 70%.
While it’s important to keep an eye on the delta of any option play or position you have on – it should always be done with the ‘bigger picture’ in mind – a look at all of the greeks and how they are all working and changing together – regardless if you are trading LEAPS, monthly dated options – or weekly options.