102 Part II: Call Option Strategies 
apparently are attracted by the leverage available from options, but they often lose 
money via option trading as well. 
What many of these option-oriented day traders fail to realize is that, for day­
trading purposes, the instrument with the highest possible delta should be used. That 
instrument is the underlying, for it has a delta of 1.0. Day trading is hard enough 
without complicating it by trying to use options. So of you're day trading Microsoft 
(MSFT), trade the stock, not an option. 
What makes options difficult in such a short-term situation is their relatively 
wide bid-asked spread, as compared to that of the underlying instrument itself. Also, 
a day trader is looking to capture only a small part of the underlying's daily move; an 
at-the-money or out-of-the-money option just won't respond well enough to those 
movements. That is, if the delta is too low, there just isn't enough room for the option 
day trader to make money. 
If a day trader insists on using options, a short-term, in-the-money should be 
bought, for it has the largest delta available - preferably something approaching .90 
or higher. This option will respond quickly to small movements by the underlying. 
SHORT-TERM TRADING 
Suppose one employs a strategy whereby he expects to hold the underlying for 
approximately a week or two. In this case, just as with day trading, a high delta is 
desirable. However, now that the holding period is more than a day, it may be appro­
priate to buy an option as opposed to merely trading the underlying, because the 
option lessens the risk of a surprisingly large downside move. Still, it is the short­
term, in-the-money option that should be bought, for it has the largest delta, and will 
thus respond most closely to the movement in the underlying stock. Such an option 
has a very high delta, usually in excess of .80. Part of the reason that the high-delta 
options make sense in such situations is that one is fairly certain of the timing of day 
trading or very short-term trading systems. When the system being used for selection 
of which stock to trade has a high degree of timing accuracy, then the high-delta 
option is called for. 
INTERMEDIATE-TERM TRADING 
As the time horizon of one's trading strategy lengthens, it is appropriate to use an 
option with a lesser delta. This generally means that the timing of the selection 
process is less exact. One might be using a trading system based, for ernmple, on sen­
timent, which is generally not an exact timing indicator, but rather one that indicates 
a general trend change at major turning points. The timing of the forthcoming move