17 lines
1.1 KiB
Plaintext
17 lines
1.1 KiB
Plaintext
Moneyness and Delta
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The next observation is the effect of moneyness on the option’s delta.
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Moneyness describes the degree to which the option is in- or out-of-the-
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money. As a general rule, options that are in-the-money (ITM) have deltas
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greater than 0.50. Options that are out-of-the-money (OTM) have deltas
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less than 0.50. Finally, options that are at-the-money (ATM) have deltas that
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are about 0.50. The more in-the-money the option is, the closer to 1.00 the
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delta is. The more out-of-the-money, the closer the delta is to 0.
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But ATM options are usually not exactly 0.50. For ATMs, both the call
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and the put deltas are generally systematically a value other than 0.50.
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Typically, the call has a higher delta than 0.50 and the put has a lower
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absolute value than 0.50. Incidentally, the call’s theoretical value is
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generally greater than the put’s when the options are right at-the-money as
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well. One reason for this disparity between exactly at-the-money calls and
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puts is the interest rate. The more time until expiration, the more effect the
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interest rate will have, and, therefore, the higher the call’s theoretical and
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delta will be relative to the put. |