OptionAutomator Options Trading Glossary:

Definition, Examples & Resources:Delta'

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What is Delta in Options Trading ?

Delta
"Delta" is the most commonly quoted Greek word that determines the change in option pricing in correspondence to the change in the underlying security's price. Delta is often used as a rule-of-thumb; indicating the probability that the option will expire 'in-the-money'. Delta values range from positive or negative, depending on whether it's a call option or put option. Also, delta behavior is highly predictable. This predictability is favorable to traders, investors and brokers alike. Delta is derived from the Black-Scholes model, but is readily available in the Brutus Options Ranker as well as most other brokerage platforms.


How to Use in Your Brutus Options Ranker Strategy


Delta is one of the most common and important greeks in options trading. It provides the clearest view of the contracts risk/reward in the moment and many traditional options trading 'rules of thumb' are based upon delta.

Here are a few potential uses for Delta in your Brutus Options Ranker Strategy:

  • Target to 0: Delta can be added to your strategy tree and targeted to 0. When doing this, we're looking to keep our strategy as 'delta neutral' as possible. When a trade is 'delta neutral' this means that the trade has no directional bias and you will profit if the underlying stock or ETF stays within a range (i.e., close to the current trading level).
  • Target to a standard deviation level: Many time traders will look to sell contracts around either the 1 or 2 standard deviation mark. In general, this gives a pretty good risk/reward for premium sellers. If your strategy is using a single contract in its setup you may want to specify either a .3 delta in order to target around 1 standard deviation or 0.05 delta to target around 2 standard deviations. Note if you have a spread-type setup, then the delta that would be checked when adding this criterion to your strategy tree would be the delta for the entire spread and not for a single contract.

Where to find Delta in the Brutus Options Ranker Criteria Panel

Delta can be found on the Strategy Tree Builder page within the Brutus Options Ranker under the Criteria List under the Greek Panel:

Specific Considerations with the Brutus Options Ranker

Delta can be either negative or positive.  Sometimes when we talk about Delta we talk about it in absolute terms.  This is simpler for trader speak, but use with Brutus is more specific.  As such, if your objective is to minimize Delta, in effect you will be maximizing the negative value of delta.  If you intend to minimize delta to 0, then you should use a target of 0 instead.

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