It took me a little over 1.25 years since the last time I visited this thread, and over 3.75 years since I started it, to truly ignite the enterprise of Forex trading Numerical Price Prediction (NPP) in a version that has been as refined and finessed as I thought it was four years ago. In any event, now that the endeavor has become a reality, and given the level of confidence I have in its ability to forecast price action in the not-too-distant future, regardless of the asset class under consideration, I am back to begin the process of taking concrete steps to begin paper trading options as quickly as possible, which I hope will be facilitated by watching the video I'm embedding below...
Most books and websites are not giving you the in-depth information you're looking for with respect to trading options, but at first glance, it looks like tradeproacademy might, so come back and take a closer look when you have more time... https://tradeproacademy.com/options-delta-trading-explained/
Tell Me More About Options Delta Delta is a ratio that measures an option's price movement compared to the underlying interest's price movement. Delta values have a range of 0 to 1. Deep in-the-money options have deltas that approach 1. Using options delta during the analysis and trading process will help you find higher probability and lower risk trading opportunities. Options delta is defined as the amount an option price will move if the underlying moves $1. So if an option has a delta of 0.50, it's going to move $0.50 for every $1 of underlying movement. Since every options contract is typically for 100 shares, a $0.50 move times 100 shares is a $50 total move for one options contract. In other words, the delta is a way of calculating how much money you will gain, or lose, given that a stock moves $1 in either direction. Options delta ranges vary from 0.01 to 1.00, although it rarely gets to either of these extreme values. You will mostly notice that options contacts stay in the 0.30 to 0.70 range. So now let's take a deeper look at the significance of values in this range... Where to Find Options Delta? Here is an example of an options chain for Apple (AAPL) stock, currently trading at $151.55 a share. Looking at the graph, you will notice that the 6th column from the left shows the options delta values for call options. While the 4th column from the right shows the options delta for put options. The $150 calls and puts are closest to the market price of Apple shares and are called the "at the money" options. Notice that option strike prices (the blue column) that are close to the market have approximately 0.50 delta values. The deeper the option is "in the money," meaning it has immediate benefit, the higher the delta. However, the cost of the option is also higher (1st column from the left, and 9th [or is it 8th?] column from the right). So which one should you use for your trading, and does it even matter? Options Delta for Swing Trading As you will notice in the image above, options with higher delta values cost more per contract. This is because they provide the most value if the stock moves $1. Cheaper costing options come with a much lower delta, which means you will make less money as the stock moves. Therefore, it will take much larger stock moves to make the same money as you would with a higher options delta contract. There is a very fine balance between cost and expected profitability. In fact, this is where market makers earn their living – keeping prices to a tight spread with high liquidity. (In general, if you plan to swing trade options you should look to purchase the contract that offers 0.60 to 0.75 options delta.) ~George Papazov, Options Trading Course Options Delta Example with Apple Stock Let's jump into an example to illustrate the effect of options delta. We'll assume that Apple is going up in the next few weeks. Thus, you want to purchase call options to make a profit. Looking once again at the options chain for Apple below: Apple stock is currently trading for $151.55, and you buy the 0.61 delta call option with the $148 strike price. This option is currently trading for $8.65. Overall, you will pay $865 ($8.65 × 100) for one contract. In two weeks, the price of Apple stock is up to $161.55 for a $10 gain per share. How much is your contract worth according to options delta? The $10 gain times the 0.61 delta equals to $6.10 per contract. Now you multiply by 100 to get a total profit of $610. Putting this in another context, a $10 move per share on Apple is a 6.6% gain on your investment. Meanwhile, this same move is a whopping 70%+ gain. (If the gain is figured from the $151.55 underlying interest's price, was is the point of listing a $148 strike price?) This means a trader could make a $610 profit on just an $865 investment, and this is the true power of options. Taking a Deeper Dive into Options Delta Because options pricing is not linear, every $1 change of delta actually leads to a greater increase for future delta. Huh? Understanding the above requires a look into the rate of change of delta, called "options gamma." So, I guess options gamma is what I will look up next. In the meantime, let me just note that... Options Delta is a must-use tool for any options trader. Understanding delta is just the beginning of creating a consistently successful trading strategy.
Yes, this is it! FINALLY, a resource that is sharing information about options which I consider worth reading!
Options Gamma Trading Introduction Options gamma is all about showing you the rate of change of the options delta. Therefore, it is the rate of change of the rate of change. I will explain what exactly options gamma trading is and how to implement it to your trading strategy. What is Options Gamma Trading? Options gamma is measured as the rate of change of the delta. As you will recall, the delta is the value change of an options contract given a $1 change in the underlying stock, or security. But does delta change equally for every $1 move? It is a little more complicated than that, as the price is not linear. In fact, for every $1 move of stock, the delta value changes for the next $1 move. Delta constantly morphs and changes in real-time. This change is measured using Gamma. Let's look at an example to illustrate the point more clearly. Options Gamma Trading – Call Option Example Imagine you own a $25 call option for a stock that is currently trading at $25 per share. The call option would have a delta value of around 0.50 as it trades very close to the market price of the stock. Looking at the curve below of this example, you will notice that the gamma (blue line) is highest near the stock price at $25 per share. This is also the strike price. Options Gamma Trading Curve – Call Example (Source: Options Trading Tips) As the stock price market value moves away from the strike price, the gamma decreases at the same rate in either direction. Critical concept #1 - options gamma is the highest when the strike price is equal to the stock price. The red line represents the call delta price, which has the steepest slope in the zone with the highest gamma. This makes sense because the rate of change is the highest (gamma) when the strike is close to the market price. Critical concept #2 - a $1 stock move will cause the highest change in your profit or loss when you own a strike price contract closest to market value. [Okay... NOW I see the role (or at least ONE role) of the strike price.] Next, let's take a look at how options gamma trading is impacted by the time value of an option contract. Options Gamma Trading – Gamma vs Time Now that you know when options gamma will create the largest gains or losses in your options contract. Let's study the relationship between gamma and time. Below you can see a graph of options gamma versus the days to expiry of your options contract. Options Gamma vs Time Graph (Image Source: The Options Guide) You will notice that the lowest time to expiry (dark blue line) has the sharpest options gamma. The longer time to expiry options has lower gamma near the at the money strike. Critical concept #3 - the less time to expire your options contract has, the higher the gamma. Therefore, the larger your profit or losses will be for a $1 move of the underlying stock. There is a very simple explanation for this concept. With less time to expire, there is less opportunity for the stock price to make a move in your favor or against you. That is, moves are more permanent as you get closer to expiry. Options Gamma – Which Option is Right for Your Trading? Now that you understand options gamma, let's talk about applying this concept to your trading strategy. Let's assume that you think Apple stock will move $10 a share in the next 4 weeks based on your technical analysis. Apple is currently trading at $148 per share. You would want the largest gamma stock option to realize the largest return for your investment. Therefore, you would want to buy a call option with 30 days time value (to have enough time to realize your 4 weeks price target). Besides, you would look for the strike price that is closest to the stock market value (called at the money). Currently, this would be the $150 strike February 8th, 2019 call option. This has 34 days to expiry. You are paying $9.00 per contract or $900 in total. This contract would give you the largest delta profit, as well as the largest increase of delta in the future (which is gamma). If you understand this concept, you have perfected the concept of options gamma trading.
@expiated, I like your approach. Like your forex trades, you will find your groove. For me, I ended up simply using options as a leverage instrument to express my view of the underlying's value. Best of luck to you.
How To Choose the Right Strike Price for Options Day Trading by Victorio Stefanov Options day trading is one of the most exhilarating parts of trading, have you ever seen a return on investment that is hundreds of percent? Imagine you tell your family that you just returned 100% of your portfolio in a week when the average return of the S&P500 is 9% annually. This is exactly what gets people interested in day trading options, the potential of massive returns and that's what keeps traders coming back. However there are too many nuances in options day trading, the main one: How to choose the right strike for options day trading? A common misconception with options day traders is that you can easily select the cheapest option available and hope for the best. $10 can turn into $1,000 quickly right? Not the case. As a day trader, you need to select options very carefully and understand the risk and the variables that go into the selection. What Are the Variables in Options Day Trading Strike Selection? As an options day trader you will have to understand that you are trading short term options, weeklies, which are affected by the following: Time/Theta Delta Pricing Implied volatility Each of these variables affects the overall price and movement of the options price. The shorter the time to expiry the more the options move for you or against you. Let's break down these variables in depth. How to Identify the Right Expiration Date? The expiration date for short-term options is pivotal, typically day traders will trade short-term options because they want to take advantage of the faster movement in pricing of the options. Think of it this way. If you are looking for a day trade and you have the opportunity to select one of the following options: 1. An option that expires in a month 2. An option that expires in a week The options that expire in a month are going to be less subject to the movement which can be more risk-averse, meaning you might be riskless, but you might also get rewarded less. Let's take a look at an example of NVDA (Nvidia options): 1.1 Option 1: 230C that expires April 01, 2022 (23 days to expiry) cost 12.50 at the point of entry. 1.2 Option 2: 230C that expires March 11, 2022 (2 days to expiry) cost 3.50 at the point of entry. The longer options have a drawdown, they reach 11.45 to the lowest point (9% drawdown or $1.05) and reach 14.75 at the peak (18% or $2.25 gain). While the shorter options have a drawdown as well, they reach 2.70 at the lowest point (23% drawdown $0.80) and reach 5.95 at the peak (70% gain or $ 2.45). The shorter-term does experience a larger percentage drawdown but a smaller dollar drawdown. While they experience a much higher percentage gain as well as dollar gain. Meaning the shorter-term options, although more volatile, are cheaper and have the potential to return more on the investment, based on the risk to reward. Risk to reward: Option 1: 2.14: 1 Option 2: 3.06:1 The point is there is a better potential to day trade with shorter-term expiration that is within the week. I would rather trade the weeklies unless it's a 0dte, other than SPY and QQQ, they have multiple expirations. (3 times a week, avoid trading 0dte). There is another variable in this, theta. A Greek that is a "time burn" variable. The shorter-term options have a higher time burn because the changes that out-of-the-money options expire in the money are lower the closer you get to the expiration and the farther away the options are. So that means if you trade short-term expirations, you want to trade close to the money, rather than super far out of the money, no matter how "attractive" the cheap options appear. Which segways perfectly into the next topic. How to Identify the Right Delta? Options delta has a huge impact on day trading options and selecting the right strike. The delta is the rate of change of the options price based on the change in the underlying price movement. The delta is a percentage of the underlying $1 move. For example, if AAPL moves $1, depending on the options delta you will experience a different gain or loss. If AAPL is trading at 160, and you can either choose the 160 calls or the 180 calls, the 160 calls may have a delta of 50% or 0.5 (they’re ATM, at the money). The 180 calls might have a delta of 15% or 0.15. This is also known as the probability that the options expire in the money on expiry. If a low delta option moves against you, it's going to be extremely hard to recoup the losses in a short-term expiry, that is why the cheaper options aren't going to be the most attractive. Let's take NVDA (Nvidia) as an example. Using the same example as above. Let's take the 230C for Mar11 and the 250C for Mar11. Comparing the two. Option 1 230C Mar11 0.40 Delta Options 2 250C Mar11 0.10 Delta We know that the 230C Mar11 experienced a 23% drawdown before a 70% return. What about the 250C? The 250C was 0.20 or $20 a contract at the same time. The max drawdown was: $0.08 per contract or 60% while the max gain was 0.25 (25%) so you are taking a lower than 1:1 risk to reward in this case. Meaning we would have to choose our delta carefully. Here is a little cheat sheet to selecting delta: Assuming that you trade weeklies. (same week expiry) Monday-Wednesday: Select between 0.22 and 0.40 delta. Thursday-Friday: Select between 0.35-0.6 delta. On Fridays you can consider the options pure lottery trades, meaning you're risking the full premium. Or you can trade the following week's options. It is different for ETF options. SPY and QQQ trade: Monday, Wednesday, Friday. Meaning you can avoid 0dte all the time. Another note: Typically delta ranges between 1-0 for calls. Then -1-0 for puts. ITM (in the money options are greater than 0.5 delta and get closer to 1 the deeper ITM you get) OTM (out the money options range from 0.45 to 0 typically the cheaper you get the further OTM you get) ATM (at the money is right at the money, 0.5 whatever the underlying is) When day trading options I do like to gravitate towards OTM options, they're cheaper and with the movement, they can really gain value fast. If you want the options to act closer to the underlying, which can present solid gains dollar-wise, you would move towards ATM or ITM options. How to Identify the Perfect Strike? The final piece to the puzzle, how can you perfectly select the right options? Rather, how can you mitigate your risk by proper options selection? The main that we've identified so far are: Timing Delta Assuming that we are trading weeklies, and understand theta will burn us, along with selecting a closer to 0.5 delta. What else can we do? We have to measure the liquidity of the options. How easily can you get in and out with the smaller loss. Each option has a spread, where the market maker will take a piece of the action. Spreads between the bid and ask can spread from $0.01 to multiple dollars. What do we look for? Let's take the NVDA options chain below as an example. We have identified that we would probably look for a strike between 230 and 240 based on delta. The next steps: What are the spreads? What is the open interest? What is the volume? Spreads with anything other than SPY and QQQ (ETFs, in general, are going to be wider). If we look at these, the tightest spread is 240, it's pretty far OTM, the cost of options is low, meaning it's riskier. The 235C has a 0.15 spread, which isn't ideal, I would rather $0.10 and lower, but this is the best one out of the lot. Then with open interest and volume, you look for high volume, ideally higher than open interest (OI). Ideally, OI is high as well. Typically non-demical strikes have better liquidity. You can see the heaviest traded is 230 and 235 on the call side. There is 72.6K volume on the 235C and 32.9K on the 235C with higher OI on the 230C. Based on these the liquidity is higher for 230C however the liquidity for 235C is still really higher. It's above 10K volume and over 1K OI. Meaning we would go with 235C in this case. This seems like a long process but once you get the hang of it, you will see this and scan this easily. Select your options carefully, manage your risk, and happy trading!
https://tradeproacademy.com/options-trading-guide-beginner-to-expert/#:~:text=Theta is the peskiest Greek,It is TIME DECAY. Ultimate Options Trading Guide: Beginner to Expert By Victorio Stefanov
ABOUT THETA Theta is a measure of the rate at which the time value of an option decays. It represents the potential decrease in the value of an option as time passes and expiration approaches. The role of theta when trading options is to highlight the impact of time on the option's value. It is especially important for option buyers to consider because they are affected by time decay, resulting in a decrease in the value of their options as time passes. On the other hand, option sellers can benefit from theta as they receive premium for selling the option and can profit from the declining time value. Therefore, understanding and monitoring theta is vital for option traders to assess the potential risk and reward of their positions. Again, theta (also known as time decay) measures the rate at which the value of an option decreases as time passes and is an important factor in options trading because it directly impacts the profitability of the trade. When interpreting theta, traders consider it as a single-day estimate of how much an option's value will decrease due to the passage of time. It is usually expressed in negative decimal form, indicating the amount by which the option's value is expected to decline on a daily basis. For example, if an option has a theta value of -0.05, it suggests that the option's value will decrease by $0.05 per day. Interpreting theta allows traders to understand the impact of time decay on their options positions. It helps them determine the overall expected profitability of the trade and evaluate potential strategies to manage it. Traders often consider theta alongside other option Greeks, such as delta, gamma, and vega, to make informed trading decisions. (Vega is another one of the option Greeks, and it measures the rate of change of the price of the option with respect to volatility. Specifically, the vega of an option tells us by how much the price of an option would increase when volatility increases by 1%. Note however that vega isn't an actual greek letter.)