Let’s listen to the question for today before proceeding to the on-screen response.Sasha, Good evening. I’m curious about 16 Delta, 20 Delta, and 25 Delta. I’ve heard that the 16 Delta strangle good, the 20 Delta change is good, and the 25 Delta strangle is good.
What is the selection process for the Delta values, and which option do you believe is better from the writer’s perspective? I also want to know how volatility affects puts and calls. We’ll omit the volatility effects, inputs, and outputs. Let’s look at questions 16, 20, and 25, which are two questions combined.
Which one is superior?
People frequently inquire as to whether one thing is superior to another. Simply put, they each have benefits and drawbacks. For example, a Taylor Camry is better than a Toyota Sienna since it is a van, and the former is more fuel-efficient, while the latter can transport a large quantity of lumber to rebuild your house.
Rather than asking which is superior to the other, ask what each’s advantages and disadvantages are. Let’s examine this, then. You can change the type of these option instruments on this thinkorswim platform to change how you perceive the Delta if you travel to the screen.
We’ll look at the Delta before moving on to find it. I want you to truly understand thatDelta refers to a number of different things.I will also adjust this other one to the option’s likelihood of being in the money. Therefore, for Delta, number one, note how close it is to the likelihood of winning. Delta has a very high likelihood of making money.
In this case, we have a negative 0.46 delta and a probability of 49.82 percent that this will be in the money at expiration. If you look at the 1550 on Amazon, however, you can see that we have a negative 0.29 delta and a probability of 31.77 percent in the money.
They are all, therefore, very close to one another and, if you really think about it, if you compare them to one another. Let’s use negative seven, which means that Delta is really approximately seven percent of the time and money.
However, if you look at those percentages precisely, it will be eight zeros at this precise moment. I also want you to understand that the term “delta” refers to the movement of the dollar value, if I go ahead and purchase this single and analyze this trade, okay, then take a look at this delta right here, which is negative nine seven seven right at fourteen thirty, you have a delta of approximately negative one zero.
But here, you’ll need to subtract 9 from 72 to get the exact number. That refers to both the probability of the money as well as the movement of that specific contract. Thus, it currently alludes to a number of different things.
Which is superior? Remember that this is probability in the money, so if you’re an option seller, you’ll understand that even if our 26 Delta is closer, our chance of success is lower, but our profit is higher. There is a trade-off.
Let’s pretend we are discussing a strangulation and compare the 25 Delta to perhaps a 15 Delta. Let’s go on to a 26 Delta. That’s fairly close, we’ll sell a strangle now. Okay, the 1550 is approximately 22.8 percent, or 20.9 percent, and we’ll go in the same manner on the call side. I’ll assess the trade for you based on the 26 Delta, 1730 on the calls, and okay, so 1730. Not once more; it really just comes down to the benefits and disadvantages.
One benefit of this is that you obtain a much greater premium for your deal. You get a lot of premium and space right here. The drawback is that you’re more constricted.
You can tell that you are now more constricted. You have rights. The maximum profit here is $4, $6, and $5. Let’s compare this to perhaps a 16 or 10 delta, then. Okay, here’s a delta of roughly ten. Let’s follow the same path. promote strangling. Okay, 1430. Let’s do a 10 Delta there. Go to the 1430 on the put side and the 1830 on the call side, both at around a 10 delta.Watch the difference.
You make less money with the same amount of capital, give or take.
The difference between the two is about three and a half times or for almost similar capital, but you know, a little bit different just because the ranges are now. Normally, I wouldn’t recommend a trade like this. I would say hey, you still should buy some wings out for protection.
Let’s say you go to a fifteen delta and we sell the fifteen hundred on the puts and buy the fourteen seventy, thirty points out, and let’s say we do a fifteen delta on the call side, which will be about seventeen ninety on the calls that we sell. We’ll go about 30 points and we’ll analyze this trade. You can see you limit your risk. You make about 780 on $2,200 worth of risk.
If you make it wider, all you are really doing is making it wider. If you are at a 16 or 10 delta, you are traveling wider than a 25 delta. You’re earning more money while maintaining tighter control. The disadvantage is that your income increases as Delta grows, they won’t just hand it to you. Instead, your chance of success is decreased because you have a higher likelihood of making more money.
Which is better? In reality, it depends. Start out slowly and as broadly as you feel comfortable when you first begin. Those things are permitted inside. If you have more experience and understand how to manage the transaction, you can be a little bit tighter. This means that while you can increase your income, you might also need to handle or experiment with the transaction a little more. I hope that helps you understand it a little bit. That is essentially how choosing the Delta inside works and functions, whether you are performing an iron condor or a strangle.
