The last lesson covered Delta long option positions. This lesson will cover Delta short option positions. The Delta for short positions is negative for written call options and positive for written put positions. The reason for this is that a short call can be thought of as a bearish position and a short put a bullish position.
If an investor is short the Apple December 220 call option and the position has a Delta of -.14, the investor can theoretically expect to incur losses when the underlying stock moves up in value and profit when the underlying stock moves down in value.
Short Call = Bearish Position
Apple December 220 call option premium is $1.18 and
the Delta for the written call option is -.14:
If Apple stock moves UP $1 in value, the call option contract will
increase in value to $1.32
(negative for the short Delta positions)
If Apple stock moves DOWN $1 in value, the call option contract will
decrease in value to $1.11
(positive for the short Delta positions)
If an investor is short the Apple December 190 put option and the position has a Delta of .27, the investor can theoretically expect to profit when the underlying stock moves up in value and incur losses when the underlying stock moves down in value.
Short Put = Bullish Position
Apple December 190 put option premium is $3.10 and
the Delta for the written put option is .27:
If Apple stock moves UP $1 in value, the put option contract will
increase in value to $3.37
(positive for the short Delta positions)
If Apple stock moves DOWN $1 in value, the put option contract will
decrease in value to $2.83
(negative for the short Delta positions)
Remember, when Delta is positive for a position it will typically profit from a move up in the underlying stock. When Delta is negative, the position will typically incur losses from a move down in the underlying stock.
| < Prev | Next > |
|---|