Tag Archive | "delta"

Q4 2010 Condor Options Performance Review

Wednesday, January 26, 2011


In last quarter’s review, I mentioned two things: that we were adding a dynamic delta hedging component to the official newsletter strategy, and that after the newsletter’s underperformance in Q3, the long-term historical record for the strategy suggested that it was actually an optimal time to increase exposure. Happily, that expectation turned out to be true, and the delta hedging component had a very positive effect on performance. The strategy returned 5.67% in the last quarter of the year (and,…

Bonus Trade: SPY November Butterfly

Monday, November 8, 2010


Our paid newsletter strategies are predicated on the expectation of mean-reversion (with risk-management rules for containing losses in trending markets)—in implied volatility as well as in price of the underlying. But when we find ourselves in a strong bullish trend, it's often desirable to both increase delta and decrease vega. One great way to do this is with butterflies...

Delta, Like Everything, Decays

Monday, October 4, 2010


Standard accounts of the option Greeks will explain that delta measures the rate of change in the price of an option per unit change in the underlying asset. The text I use with mentoring clients, Natenberg’s Option Volatility and Pricing, provides some additional helpful ways of thinking about delta: as a ratio of underlying contracts to options required to establish a neutral position, e.g. for every five 40-delta calls purchased, two underlying contracts (or two hundred shares of…

Trading the Nasdaq 100 with Precision

Friday, December 11, 2009


The Powershares Nasdaq 100 Trust (QQQQ) is a highly liquid, very popular ETF with actively traded options. But for traders who want to implement an options strategy on the Nasdaq 100 with any precision, QQQQ may not be the optimal product. Assume you are trading a strategy that includes the following rule: When the 14-day Relative Strength Index (RSI) closes below 30, sell a put with a delta of -20 in the nearest cycle with at least 14…

The Lazy Guide to Delta Hedging

Friday, July 10, 2009


In my last post on this topic, “Why Delta Hedging Matters,” I argued that an essential aspect of options trading is hedging away unwanted risks. For most traders, the unwanted risk is usually to directional price movement, or delta risk.  We discuss this issue in the context of trading iron condors a fair amount on the members area of the site, but the principle is just as important whether you’re short one call contract or managing a book of…

Why Delta Hedging Matters

Wednesday, June 24, 2009


Some traders use options to speculate on the price movement of an underlying asset; other traders use options to speculate on changes in the volatility, implied or realized, of that asset.  Put a little differently: while no options trader can afford to ignore the role that volatility plays in the price of a contract, not all options traders are interested exclusively or even primarily in volatility. If you’re essentially a stock picker who likes to lever up by buying puts…

Look Before You Buy LEAPS

Monday, March 23, 2009


Long-term Equity Anticipation Securities (LEAPS) are a class of options with expiration dates longer than a year.  Their purpose is to allow investors who would otherwise hold shares of an underlying equity to buy an option instead, and thereby participate in expected price movement without tying up as much capital.  However, we caution investors against using LEAPS as stock substitutes without first taking volatility considerations into account. Let’s say you want to buy 1000 shares of Cisco Systems (CSCO).  At…

Weekend Portfolio Update

Monday, February 2, 2009


[We publish updates each weekend on the members-only areas of our site. Our comment for this weekend is below; the strike prices of our open positions have been hidden.] The markets still seem to be in a bottoming process.  Unless the S&P 500 can hold the 800 area, we see no reason to expect any major multi-week rallies.  Our directional bias is down-to-sideways, and it would take a high volume, multi-month rally coincident with some positive economic news to…

The Bucking Gamma Bull

Wednesday, January 7, 2009

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We’ve mentioned before that our preference is to close out short option positions before the dynamics of expiration week have a chance to kick in.  In a nutshell, while it’s true that theta declines more quickly as expiration looms, tempting option shorts to hold on as long as possible, it is also true that gamma rises more quickly closer to expiration, as shown below. There is no one right answer about how to trade expiration.  But if…

Short-term Outlook and Risk Management

Thursday, October 2, 2008


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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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