Options Delta In A Vertical Spread, How To Make More Money
If you wonder that options delta is, please visit my previous post at
http://ioptionstrading.net/options-greeks/options-delta-how-to-know-how-much-you-make-or-lose/
Options delta in a multi-legged trade will calculated by adding all delta together.
In case of a vertical spead, its delta is the positive (long leg) minus the negative (short leg).
For example, if you buy an ATM AAPL 300 and sell an OTM AAPL 350, the options delta will be +50 adds the smaller negative (assume it is -30). So it is 20 delta.
20 options delta here means your trade will increase 20cent for every $1 move in the underlying asset.
Now, if you read my previous post, I pointed out the sweet spot is 25 to 30. However, it only applied to the straight options.
To know what pair to buy in a vertical spread strategy, you need to look at the difference in prices in each pair up and down.
You will notice that the ATM pair will not make that much money compared to an OTM one for each move equal to the strike spread.
Trying moving the pair up or down, you will be able to spot one that potentially makes the most money from you.
Tips: Always buy slightly OTM/ smaller options delta for vertical spread. It in every case makes more and a lot more money than ATM and ITM.
When you do vertical spread, the cost of engaging a trade is much smaller than buying a straight options.
However, think carefully if you want to increase position sizes or options delta because leverage is the double-edge sword and you can kill yourselves with that.
Category: OPTIONS GREEKS
