Keeping track of deltas

[Profitaker]

Bulldozer

You and many others often cite the “fact” that most options expire worthless. Well actually that’s not the case at all. The CBOE has the data to prove it (do a search), that something like only 30% of options expire worthless, the rest are either exercised or closed, the vast majority are closed prior to expiry. In any event, what does or does not expire worthless gives no indication of profit / loss to writer / buyer.

Prof,
So you would argue that the buyers have the edge over the writers.?

Not really. I’m saying that if you sold options and I took the other side (bought them) neither of us would know who had the edge until they expired. If you did a historical study (as did Gallacher) you’ll find that over time neither writer nor buyer had any inherent advantage (edge).

Most brokers tell you that the writers have more success than buyers. Evidence is from their records on clients!

That suprises me !

The link you gave, where does he get the evidence from?or on what does he base his fidings on? any one can write something, that does'nt mean its true! Unless its based on hard facts wiv real evidence i'm not going to believe it!

Evidence taken from many markets including equity, index, commodity, FX, and more. Incidentally, the actual data he used fills half the book, so it’s quite easy to check his conclusions (laborious buy easy).

a option broker has hard facts. is he an option broker? [just curious]

Can’t remember – the book was lent to me some time ago.

 

[bulldozer]

Prof,
If we did 100 trades over a 1 yr period and i wrote the footsie index OTM positions and you paid the premiums, Who would have more gains or the edge?
I'm prepared to wager you $1000 against your $100 thats 10/1 odds! are you up for it? I get to pick the trades and you take the other end the long PUTS and i take the short PUTS.

Bull

 

[Profitaker]

Prof,
If we did 100 trades over a 1 yr period and i wrote the footsie index OTM positions and you paid the premiums, Who would have more gains or the edge?

Gains have nothing to do with edge. In the same way that a Casino has an undisputable edge, they can and do lose money. That applies also to options. Gains banked would not necessarily mean that you ever had an "edge" !

I'm prepared to wager you $1000 against your $100 thats 10/1 odds! are you up for it? I get to pick the trades and you take the other end the long PUTS and i take the short PUTS.

I'm happy trading the market (see you there), but thanks anyway.

 

[Profitaker]

glad you admit to trading ftse. then you have defo blown up more times than monica..ho hum!!

I trade FTSE contracts (ESX) almost exclusively. What do you see wrong with that market ?

 

[Profitaker]

prof,

forget the guy, he's got no clue what your talking about!! He does'nt even know what delta is or delta zero is or that thread is about delta!

In the context that you use delta, I have no clue what you're talking about either ! You really are priceless !

Now, it may seem almost inconceivable to you, but I'd actually like to hear is views. It maybe that he has vast experience of the market I trade, or maybe he's prepared to enlighten me on other lucrative markets, like electricity was discussed the other day, for example. Either way, don't tell me to "forget the guy" ! I'll decide that.

Whilst I'm on a roll, I have noticed that you manage to ruin what initially promises to be an interesting subject on many threads. Why not try engaging in the subject matter being discussed, rather than trying to show everyone what a clever option trader you are, and having the opposite effect, not often, but always.

Please !

 

[bulldozer]

Prof,

I'm sorry if i come across as a big head or arrogant. Its just that i believe that most of the guy's on this option forum trade american style and not european style. I am 100 percent convinced that eu style is by far the best! [perhaps in a few yrs time you will understand what I'm gettin at?]

As for Deltas: Most brokers will tell you that PUT options that are delta zero have OVER 80 percent chance in expiring worthless!! A wise person would try to get that info from an option broker and NOT from a book! cause the writer of that book may not even know or heard about EU style options. Do you know what i mean by Delta zero put options?? Also a written put on delta zero EU style does not need adjusting during its life span!!

You also said earlier that you dont know who has the edge in option trading [the buyer or writer] surelly if you dont know that?? you cant be able to trade wiv confidence and to know which strats to use?

I'm a type of person that take NO crap from people like pitscum! If you go back a few posts on pitscum you will notice that it was HE that started the mud slinging and i just give same back!!
Sorry thats just the way i am!! And i dont intend to change my way of life to please people!
I'm glad to hear that you dont approve of my choice of words or my choice of trading options?
I offered you a wager earlier in one of the posts at 10/1 and you did not take the offer! Surelly a person who believed in what he said would have grabed the offer wiv both hands and a smile!! but u chose to sit on the fence and brushed the offer aside!!

Bull

 

[wal]

In my little corner of the trading universe delta zero means delta neutral.

But bulldozer is talking delta zero puts.

Again in my version of reality delta zero means premium zero as well. Its got me buggered how you're supposed to "milk the theta" without theta to milk.

But as bulldozer is no doubt about to inform me, I know nothing.

 

[Profitaker]

In my little corner of the trading universe delta zero means delta neutral.

But bulldozer is talking delta zero puts.

Again in my version of reality delta zero means premium zero as well. Its got me buggered how you're supposed to "milk the theta" without theta to milk.

But as bulldozer is no doubt about to inform me, I know nothing.

Sure there are Puts (and Calls) with a delta (close to) zero when the options are DOTM and near-time dated. However, if these Puts (or Calls) really do have an 80% probability of expiring OTM (as Bull would council) then anyone with just two brain cells would be buying them like there was no tomorrow ! The logic is simple... BZ will explain !

Pitscum

Ok, you've had some fun, now are you going to put some meet on the bones, or will you join the BZ league. I'm thinkng particularly the footsie market.

 

[wal]

Sure there are Puts (and Calls) with a delta (close to) zero when the options are DOTM and near-time dated.

Sure, but close to zero is not zero...and close to zero delta still means close to zero premium. Am I now being pedantic?

If you're going to write, why not write closer to the money (but still aways OTM) and have reasonable premium and therefore reasonable theta. Sure you will have to defend sometimes but thats what makes trading fun.

With some meaningful statistical analysis, one can balance risk againt reward intelligently, rather than just going as far OTM as possible.

That's if you want to write.

(not having a go at anyone here, just trying to provoke some thoughtful discussion)

Cheers

 

[wal]

======================================================================

Wal,

Delta zero put options Eu style does NOT mean delta neutral!! Go back to your books.

I aint going to teach you guys something you can teach yourself!! [wiv the help of a few books]


Happy learning :cheesy:

Bull

I was expecting condecension. You did not dissappoint. LOL

Is not the delta value of a delta neutral position ZERO?

BTW if I wanted to learn something, it would be from someone who knew what they were talking about. The tedium of all this is that this is all fairly basic. No esoteric knowledge of greeks required here. Just the stuff that everyone knows. LOL

 

[bulldozer]

Prof,

your quote>>"Sure there are Puts (and Calls) with a delta (close to) zero when the options are DOTM and near-time dated. However, if these Puts (or Calls) really do have an 80% probability of expiring OTM (as Bull would council) then anyone with just two brain cells would be buying them like there was no tomorrow ! The logic is simple... BZ will explain !""

====================================================================

Writing DOTM Eu style puts on ftse index [delta zero] is more safer than writing delta 0.5 or delta1!!!

If you cant see that? perhaps in a few yrs and a few more trades in options you will wake up to reality.! :cheesy:

A short strangler wiv a pot of X amount will do DOTM [delta zero] EU style on ftse index and NOT ATM or ITM short strangles! !! [delta 0.5 or delta1]

If this dont sink in? dont worry it will after a few yrs!!

A BIG ERROR in your post!! [above] I'll give you 2 weeks to spot it. If you and your chums cant see your error? come back to me and i will advise.

Bull

 

[bulldozer]

I was expecting condecension. You did not dissappoint. LOL

Is not the delta value of a delta neutral position ZERO?

BTW if I wanted to learn something, it would be from someone who knew what they were talking about. The tedium of all this is that this is all fairly basic. No esoteric knowledge of greeks required here. Just the stuff that everyone knows. LOL

==================================================

Wal,

I was refering to ONE leg ONE STRIKE put option being on DOTM delta zero !!! and NOT a delta neutral position!

Bull

 

[bulldozer]

Sure there are Puts (and Calls) with a delta (close to) zero when the options are DOTM and near-time dated. However, if these Puts (or Calls) really do have an 80% probability of expiring OTM (as Bull would council) then anyone with just two brain cells would be buying them like there was no tomorrow ! The logic is simple... BZ will explain !

Pitscum

Ok, you've had some fun, now are you going to put some meet on the bones, or will you join the BZ league. I'm thinkng particularly the footsie market.

===============================================================
Prof,
Is a DOTM put on ftse index eu style wiv 2 mths to xpiry a delta zero position?
and is a DOTM Short strangle on ftse index a delta zero position?

Now which end would you like to be on?? The buying end or the selling end???

Bull

 

[wal]

I know

But bulldozer is talking delta zero puts.

 

[Pitscum]

all beef jerky is doing writing puts that will never ever ever ever ever come home to roost, hmmmmm. so essentially hes written volatility as opposed to theta. trouble is. any time the market blows out, as we have seen frequently, he gets handed his ass.to get any level of theta he has to write so many hes a liability waiting to happen a few more times then it has already.

the only delta zero options i know are ones that expire worthless on the dot that the contract expires. up until then, they have a delta. i get the feeling he relies too much on a broker to tell him which puts he should be selling. european style ftse options are very very easy to price as we all know and bear in mind, he probably hasnt ever considered a skew on the deep out of the monies so consequently, his little b+s model with its linear prices wont reflect the true market prices one iota. mind you, when you have brokers like his to help him, who needs tech stuff huh?

if beef has found an option with a delta zero for a contract still trading , then perhaps he shoudld consider putting mr black and scholes to shame and demanding their nobel back off them??

 

[bulldozer]

Sure, but close to zero is not zero...and close to zero delta still means close to zero premium. Am I now being pedantic?

If you're going to write, why not write closer to the money (but still aways OTM) and have reasonable premium and therefore reasonable theta. Sure you will have to defend sometimes but thats what makes trading fun.

With some meaningful statistical analysis, one can balance risk againt reward intelligently, rather than just going as far OTM as possible.

That's if you want to write.

(not having a go at anyone here, just trying to provoke some thoughtful discussion)

Cheers

===============================================================


Wal,
A Nov 5075 ftse put should have a value of about 10 [recieve] = £100 per contract, £1000 for 10 contracts! Is this NIL premium ? Its DOTM by almost 400 pts.

A Dec 5025 ftse put should have a value of around 18 pts [recieve] =£180 per contract, £1800 for 10 contracts! is this Nil premium?? Its DOTM by 400 pts.

I'm selling time value!!! and waiting/enjoying the theta to eat into the prem's!!

I'm also saying that i have the edge against the BUYER and ive got MORE than 80 % chance of success then the buyer in making a profit!! I would also like to point out that i could be doing more than 10 contracts.

Now heres a wager for you 3 guys!! take your pick!!
$200 to your $100, $500 to your $100, or $1,000 to your $100. Pick anyone u fancy!?

I will make a profit from BOTH trades!! b4 xpiry and /or on xpiry of options!!
Offer is open to all 3!! you have 24 hours to decide!! If I'm wrong i will send money to t2w admin to pass onto you. DEAL??

Bull

 

[bulldozer]

P SCUM,

Trading is about the following for me:

1. Take money that is offered from buyers accounts of DOTM puts and transfer to my account.

2. If and when they win they get paid. I have plenty of margin sitting in account ready to pay out to winners.

3. It does not matter what options strats i use as long as my strats keep bringin money in.

4. I always make sure i have an escape route when things dont go to plan! meaning, a strategy to go into, when position is in a pickle. The same way a Spread btr firm does! when he has to pay up.

5. As a EU style Put writer i decide when to close position before xpiry or at xpiry. and I also decide which strike and month to write!


Bull

 

[Profitaker]

Bulldozer

A few choice quotes and answers. It took almost an hour of my life – don’t make me regret it !

“Delta zero options” do not exist, all options have a delta between 0-1. European or American style makes no difference in delta calculations.

“Is a DOTM put on ftse index eu style wiv 2 mths to xpiry a delta zero position?”
If you short the Put you’d be delta positive, go long you’d be delta negative, a single Put or Call position will never be delta neutral.

“and is a DOTM Short strangle on ftse index a delta zero position?”
It would be, if the forward spot was trading mid-way between the strangle strikes.

“Now which end would you like to be on?? The buying end or the selling end???”
It depends on the IV, if I thought it was too high I’d sell premium, too low I’d buy it.

“Writing DOTM Eu style puts on ftse index [delta zero] is more safer than writing delta 0.5 or delta1!!!”
Wrong ! Using delta as a measure of risk is almost useless because it shows the option price change for a tiny change in spot. Look at your position Gamma to determine real risk. You could be short delta neutral gamma -1.0, or short delta -1.0 Gamma -0.05. The delta neutral position is MUCH more riskier than the positive delta -1.0 position. Just look at the size of the negative Gamma ! We are essentially talking about option leverage here.

“A short strangler wiv a pot of X amount will do DOTM [delta zero] EU style on ftse index and NOT ATM or ITM short strangles! !! [delta 0.5 or delta1]”
A specific position delta can be constructed using DOTM, ATM or even on an ITM guts strangle. It has absolutely nothing to do with
a) size
or
b) European or American style options.

“A Nov 5075 ftse put should have a value of about 10 [recieve] = £100 per contract, £1000 for 10 contracts! Is this NIL premium ? Its DOTM by almost 400 pts.”
Yes, and those options have a delta -0.07, Gamma 0.00056 and leverage of x 44.

“A Dec 5025 ftse put should have a value of around 18 pts [recieve] =£180 per contract, £1800 for 10 contracts! is this Nil premium?? Its DOTM by 400 pts.”
Yes, and those options have a delta of -0.10, Gamma 0.00053 and leverage of x 32.

“ I'm selling time value!!! and waiting/enjoying the theta to eat into the prem's!!”
The flip side of Theta is Gamma, and it’s about twice the magnitude. Why do you think anybody buys premium ???

“I'm also saying that i have the edge against the BUYER and ive got MORE than 80 % chance of success then the buyer in making a profit!! I”
Categorically wrong !

“Now heres a wager for you 3 guys!! take your pick!!
$200 to your $100, $500 to your $100, or $1,000 to your $100. Pick anyone u fancy!?”
That is generous. Now here’s a wager for you… If you can show AND explain how to calculate an option delta, long hand, and with a worked example.

Then go on to calculate option leverage, and just to finish off explain Delta bleed and how delta changes with changes in IV.

If you can do that then I’ll donate £ 1000 to your favourite charity (you don’t need the money).

Lets say within 24 hours, and without edits.

Time now is 1008 BST.

 

[Profitaker]

Prof,
Sorry matey youve waisted one good hour of your precious time!!

Yes, I think you’re right…. for once.

If you really think I'm going to spend 4-6 hours educating you for free or just for the love of it??

It’s not about educating anyone. You would actually kill 2 birds with one stone. Firstly, you’d have the opportunity to show everyone that you actually know something about options, i.e. raise your profile from that of a know-nothing-chancer, to someone who actually knows his stuff. Secondly, you’d earn £ 1000 for charity – no small achievement.

Incidentally, it could be explained verbally in 10 minutes, written up I guess no more than 1 hour.

Your post above show some contradictions! In this post you admit to delta zero to Mr WAL. and in your one hour post you say theres NO such thing as delta zero.

There is no contradiction. You are confusing Option Delta with Position Delta. No individual options have a delta of Zero, however, a combination of options (negative + positive delta's)can be put together to form a Position delta of zero.

 

[bulldozer]

Prof,
NO confusion my end!

FOR THE VERY LAST TIME!!

Writng DOTM ONE LEG PUT [Eu style ftse index] Options wiv 1-3 mths to expiry gives you the edge over the BUYER!! And 80 % chance the position WILL xpire WORTHLESS!!! and the writer gets to KEEP ALL THE PREMIUMS!

This is my arguement and you are saying it NOT SO!!

Thats what the wager is all about that I'm offering you 3 guys!! VERY SIMPLE!!
Take or leve it? The dicision is yours!!

Bull