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I have a question I hope someone will be kind enough to answer.
I entered a 80/60 strangle in W yesterday. It has a call delta of .39 and a put delta of -.26. I entered at $69.88 on the options with 52 DTE. After entry the stock went from 69.88 to 68.72. So lost $1.16. The options contract lost $400 on the put side and gained $250 on the call side with this move in price. Netting -$150. How is this possible with the positive call delta of $.13?
Options do not only exist on the value of "Delta". You always also have to be aware of "IV", which is the "Implied Volatility" on each option at the current moment. Did you check the "IV" on your choose d options at the moment you entered the market?
Like @Symple said, there is more than delta that goes into the price of an option.
The greeks
-Delta: Change in the price of underlying
-Gamma: rate of change of delta
-Theta: impact of time remaining on option
-Vega: volatility (as Symple mentioned)
Those are the main four impacts to the price of an option.
I did take a screenshot when I entered the trade and the IV on the put side for the 60 strike was 81.15% and was 82.94% on the call side for the 80 strike.
I understand there are several factors (the Greeks) all impacting the pricing of the options, I am just hoping this value is actually the result of a calculation (as it is described in texts) rather than just a dartboard throw.
If it was just a few cents off, I would let it go, but in this case it is actually the inverse of the delta, so I am thinking the delta might be weighted very low (which from what I have learned this is not the case) and some other greek is weighted much higher (like 2 or 3 times the affect of delta) to cause this inversion.
Yes, as you say yourself: there are absolutely different factors that can influence the price of an option in many different ways. In addition to the "Greeks", the volume must also be taken into account. An-other factor is also whether "ITM, ATM or OTM". Then there is the bid/ask and how cleanly it is traded in the respective market. So absolutely different influences which can determine the price of an option. Since I was not in your trade, I do not have all the information to say more about it.
But what you can do, if you are interested in something like that, is to change your strategy. There are different approaches to do this.
In this trade you have decided for a "Strangle" without owning the future or the stock. This is not an accusation or a mistake, but a statement. To that extend, this is an advantage or disadvantage, depending on how I want to handle the situation. Is then just like a third leg in this strategy which has a delta of 100 and tares losses or gains altogether. One can discuss about it.
To make it short here now: You can also start with one leg, whether call or put, depending on how you see the market, then set your swing point on the other side where you buy the put or call and at the next swing point you enter with the future or the stock. You now can keep the leg with the 100 Delta or you even trade this leg how ever you wish. Sounds maybe a bit complicated, but as a beginn you can try it in any cheap market where you can not lose much in case you do wrong.
If you may are afraid of doing a directional trade with any option, let you say you also can convert any such leg at any time into any " Option Credit or Debit Spread" by adding the second leg.
Thank you once again for your thoughts on this matter. I will perform more investigation on the greeks and also into the strategy you are recommending. Please enjoy your day.
It is certainly important that an options trader knows how the "Options Greeks" work and understands this. Only with this knowledge alone you come as an option trader, especially in the field of "option and hedge strategies" not to the desired success or goal or whatever you may call it.
So what else is to be considered in addition to all the points and factors which have already been addressed here in this thread?
In a nutshell: It is the knowledge how I can correct an option strategy that is going wrong. The topic is huge, because on the one hand it is only about the taring of a loss and on the other hand that I simply make adjustments in order to be able to continue to work with the established option strategy.
To bring here once an example to this topic, I post times a link freely from the Net. It is the opposite of your selected strategy, because it is an example of a "short strangle", but you simply have to think and implement everything that is explained there in reverse, that is short is long and long is short.
If you understand this game of implementation, "long short and short long", in your head, then you have a good chance to quickly learn how to correct "option strategies" that go wrong, even while they continue to run in the market.
