Home > Trading Science Support Desk > Knowledgebase

Ask a question:

The options seem "deep in the money". Is that usual?


Options are purchased for their value based on Deltas (how much they move based on a dollar's change in the stock value.) We always buy with a delta of around a .67, or as close as possible, because this is the sweet spot in the options acceleration curve.

We typically buy options 4-6 months out, that are deep in the money.

What this means, is that if we purchase an option with a delta of around .67 and the market goes in our favor, relatively quickly that option delta will increase to 90 or even higher to the max of 100.  Once that happens, we basically own a "mini me" version of the ETF, for much less cost.

Why? Because an option with a delta of 100, moves lock stock in price, dollar for dollar, with the underlying ETF...

Was this article helpful? yes / no
Article details
Article ID: 17
Category: ETF Tipping Point
Date added: 2013-04-01 15:45:17
Views: 1499
Rating (Votes): Article rated 3.9/5.0 (60)

<< Go back