By Melody
We are hoping this to be an easy and simple lesson to introduce options to you. By following Options Basics' articles, you should be able to understand options and how to utilize options to either profit or protect your stock.
Before we get to all the strategies for options trading, it is a good idea to meet the greeks first. They will affect the price of every option you trade. However, in this part, one thing you have to keep in mind is that the examples we use are "ideal world" examples. In the real world of options trading, things tend not to work quite as perfectly as the "ideal world" we are in when learning about options.
Delta
Beginners sometimes assume that when a stock moves $1, the price of its options will move more than $1. That is a very common mistake. The option premium(cost of the option) is much less than the stock. Why should you reap more benefits than if you owned the stock?
The real question is how much will the price of an option move if the stock moves $1? That is what "delta" is for.
Delta is the amount an option price is expected to move based on a $1 change in the underlying stock.
Calls have a positive delta, between 0 and 1. That means if the stock price goes up and no other pricing variables change, the price for the call will go up.
Puts have a negative delta, between 0 and -1. That means if the stock goes up and no other pricing variables change, the price of the option will go down.
As a general rule, in-the-money options will move more than out-of-the-money options, and short-term options will react more than longer-term options to the same price change in the stock.
Everything above would be what you will get from textbooks, but there actually is a simple and useful way to think about delta: the probability an option will wind up at least $.01 in-the-money at expiration.
For example, if an option has a delta of 0.503, this means there is a 50.3% probability that this option will wind up $.01 in-the-money at expiration.
Simple as that!
Below is a screenshot example of where to check delta on Moomoo!
Please stay with us for more on options basics!
Please stay with us for more on options basics!If there is anything that you didn't understand in today's Options Basics article, simply leave a comment below and we will try to explain more to you!
Comment(15)
I feel like I'll never understand this 😂
very new to trading. difference between calls n puts? I think I got it, but not quite sure.
Just go with the probability explanation. It’s the easiest way to look at delta!
If you think price will go up, buy call. If you think price will drop, buy put!
What does it mean to be in-the-money or out-of-the-money?
It’s essentially long or short. Call is a contract for 100x shares of XYZ bought at a price higher than when you got the contract. Conversely, you buy a put and agree to purchase XYZ in the future at a lower price but with the benefit of the premium so you can profit in bear markets too
I dun understand 🥲
Nicely explained in lamon terms
In-the-money means that the strike of your call option is lower than the current price, or the strike of your put option is higher than the current price.
Which part T_T
let me ready that 2 more times before I present the first million questions
good way to pad the pockets .main profit made from new traders.and what a better way to get that money then with unpredictable options .take this warning if you know not anything about options.go find yourself an app you can practice without risk of any money.
good day good luck. trust nothing. it's all a trip wire to get your money.know that!
loveya moomoo cow.
If my sell put option is gaining more than 75% because the market price has shoot up so much.. do I needs to close the position by Put? Or let it expire by itself?
More to learn and understand. Better to have available fund on standby when selling Put
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