Chapter 3: Call Buying 101 
Example: If XYZ is 4 7½ and the call buyer expects a quick, but possibly limited, rise 
in price in the underlying stock, should he buy the 45 call or the 50 call? The delta 
may help him decide. He has the following information: 
XYZ: 471/2 XYZ July 45 call: price = 31/2, 
XYZ July 50 call: price = 1, 
delta = 5/a 
delta = 1/4 
It will make matters easier to make a slightly incorrect, but simplifying, assumption 
that the deltas remain constant over the short term. Which call is the better buy if 
the buyer expects the stock to quickly rise to 49? This would represent a 1 ½-point 
increase in XYZ, which would translate into a 15/16 increase in the July 45 (l½ times 
5/s) or a 3/s increase in the July 50 (1 ½ times ¼). Consequently, the July 45, if it 
increased in price by 15/16, would appreciate by 27%. The July 50, if it increased by 
3/a, would appreciate by over 37%. Thus, the July 50 appears to be the better buy in 
this simple example. Commissions should, of course, be included when making an 
analysis for actual investment. 
The investor does not have to bother with computing deltas for himself. Any 
good call-buying data service will supply the information, and some brokerage hous­
es provide this information free of charge. 
More advanced applications of deltas are described in many of the succeeding 
chapters, as they apply to a variety of strategies. 
WHICH OPTION TO BUY? 
There are various trading strategies, some short-term, some long-term (even buy and 
hold). If one decides to use an option to implement a trading strategy, the time hori­
zon of the strategy itself often dictates the general category of option that should be 
bought - in-the-money versus out-of-the-money, near-term versus long-term, etc. 
This statement is true whether one is referring to stock, index, or futures options. 
The general rule is this: The shorter-term the strategy, the higher the delta should be 
of the instrument being used to trade the strategy. 
DAY TRADING 
For example, day trading has become a popular endeavor. Statistics have been pro­
duced that indicate that most day traders lose money. In fact, there are profitable day 
traders; it simply requires more and harder work than many are willing to invest. 
Many day traders have attempted to use options in their strategies. These day traders