Changes to Delta are continuous. It doesn't drop at a different rate than it rises. Delta is determined by price. If the stock simply drops $10 and then rises $10 Delta returns to where it was. The changes, as noted, are primarily due to time decay.
Its seems that a lot of experts talk about buying options, but hardly ever about selling them. If you want to buy a stock, just sell a put below the stock price. You might as well get paid while you wait for the stock to come down to the price you want to buy it for! After all how often do you really know when a stock is going to go up? It's a coin flip, 50/50! With the put you can at least set your probability of success and the premium!
The guest is saying misleading things. Delta is nothing but the derivative of the option price with respect to the stock price. Then there is gamma, which is the double derivative of option price with respect to the stock price. So, if a stock goes down $3, starting with a delta of 0.5, the delta continuously goes down (as per gamma) on its way down to, say, 0.4. But, on the way back up, the delta also rises as per gamma back to 0.5. The reason you lose money with a long call option in cases where the stock starts at a price, goes down, and comes back at the same price is because of two reasons: 1. The time value of the option decreases closer to expiration (as per theta) 2. You have to pay the bid-ask spread to the market maker, and trading commission to the broker. It is unfortunate that such ill-informed but sure sounding so-called "experts" mislead people about investing and trading. Who am I? I do mathematics for a living. I have a PhD in engineering and I am a scientist. Not as much driven to make boat loads of money as compared to making cool stuff, but I understand mathematical models better than these jokers.
on “that stock price going down and coming back, but delta may be less.” i think you are wrong, and the guest-Kevin was correct. the delta value is decreasing with time passing by. As the time erodes, there is less and less chance of the call (same for put) expiring in-the-money so the corresponding delta approaches zero as the expiration date closes in, and with underlying stock price unchanged/fixed. otherwise, on expiration day, an out-of-money option still has large delta value is quite illogical and unreal, isn't it?
Wish I herd this earlier
Another reason to like credit bull put spread. Less worries about delta and time decay and volatility.
Changes to Delta are continuous. It doesn't drop at a different rate than it rises. Delta is determined by price. If the stock simply drops $10 and then rises $10 Delta returns to where it was. The changes, as noted, are primarily due to time decay.
Its seems that a lot of experts talk about buying options, but hardly ever about selling them. If you want to buy a stock, just sell a put below the stock price. You might as well get paid while you wait for the stock to come down to the price you want to buy it for! After all how often do you really know when a stock is going to go up? It's a coin flip, 50/50! With the put you can at least set your probability of success and the premium!
That is a good way to look at it
The guest is saying misleading things. Delta is nothing but the derivative of the option price with respect to the stock price. Then there is gamma, which is the double derivative of option price with respect to the stock price. So, if a stock goes down $3, starting with a delta of 0.5, the delta continuously goes down (as per gamma) on its way down to, say, 0.4. But, on the way back up, the delta also rises as per gamma back to 0.5.
The reason you lose money with a long call option in cases where the stock starts at a price, goes down, and comes back at the same price is because of two reasons:
1. The time value of the option decreases closer to expiration (as per theta)
2. You have to pay the bid-ask spread to the market maker, and trading commission to the broker.
It is unfortunate that such ill-informed but sure sounding so-called "experts" mislead people about investing and trading.
Who am I? I do mathematics for a living. I have a PhD in engineering and I am a scientist. Not as much driven to make boat loads of money as compared to making cool stuff, but I understand mathematical models better than these jokers.
How much money have you made trading options, Dr Amit?
on “that stock price going down and coming back, but delta may be less.” i think you are wrong, and the guest-Kevin was correct.
the delta value is decreasing with time passing by.
As the time erodes, there is less and less chance of the call (same for put) expiring in-the-money so the corresponding delta approaches zero as the expiration date closes in, and with underlying stock price unchanged/fixed.
otherwise, on expiration day, an out-of-money option still has large delta value is quite illogical and unreal, isn't it?
PhD en mathematics isnt required here. This is NOT theory
Amen, buddy. You said it well. Have a great day. God Bless you.
Rod P
Great advice!
its clear the host of the show has very little idea what kevins talking about
Awesome