Hi
Can someone explain to me what Long Delta and Short Delta basically means ?
Thanks!
Hi
Can someone explain to me what Long Delta and Short Delta basically means ?
Thanks!
Long Deltas are when you have an option position where an increase in the underlying price also increases the value of the option
E.g. Long Call, Short Put
Short Deltas are where you have an option where a decrease in the underlying price will increase the value of your option
E.g. Long Put, Short Call
Think of long deltas as positive delta and short deltas as negative delta.
It will lessen the confusion with whether the option is long or short, because sometimes people get confused that all long options have long deltas and vice versa.
Last edited by mazzatelli1000; 13th-September-2008 at 11:40 PM. Reason: terminology
Thanks for that mazz - that clears it up - can I ask - why do you hate Gamma ?
I thought Gamma falls as we approach expiration ?
It depends where the underlying is.
If the option is deep ITM or OTM, coming towards expiration Gamma will not be very large, if anything dwindle.
But if the option is ATM or within that vicinity, delta could fluctuate wildly as movements to either side of the ATM strike could mean the option is ITM one moment and OTM the next.
Remember that OTM delta = 0 , while ITM Delta = 1
Imagine the above scenario with 5 minutes til expiration
Long Call Option is ATM = delta 0.5
Price rallies, it becomes ITM with delta of 0.9 but then a sell off, it becomes OTM say at 0.1.
Combine that with less time to expiry and/or drop in IV means the delta will move around alot - which is what Gamma is measuring - the sensitivity of delta.
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