• Represents the movement for every dollar increased or decreased

  • 40 delta, +$40 for a $1 increase in share price, ($40) for a $1 decrease in share price

• Delta is approximately the probability of the Strike ending ITM

• Delta > 50 = ITM; Highest Delta = 100 or $100 per $1 increase

• Delta < 50 = OTM; Lowest Delta = 0.01 or 1 cent per dollar

• Theta, or time decay, refers to the value of time placed on an option.

• All options have an expiration date

• The closer you are to expiration, the higher theta will be

• Theta is a form of Extrinsic value

• If you have a theta of 0.50, every day your option premium will experience time decay (theta burn) roughly $50 each day

• When you select a an expiration in the future, you are often paying for the time value and opportunity

• Rate of change for an option's delta based on a single-point move in the delta's price

  • If you have a 40 delta and 0.25 gamma

  • If the share price increased by one dollar, theoretically delta would increase to 40.25

  • If the share price decreased by one dollar, theoretically delta would decrease to 39.75

• Gamma is at its highest when an option is at the money, and is at its lowest when it is further away from the money

Here is a website that shows the equation and how VEGA and Implied Volatility (Option VEGA) can have an impact on the option premium.

• Vega impacts options premiums based on volatility

• Buying CALLS and PUTS

  • Best to buy when volatility is low and sell when volatility is high

  • Option prices rise when volatility rises

  • Option prices decline when volatility declines

• Selling CALLS and PUTS

  • Benefits the most when option volatility decreases (high volatility crashing)

  • Option prices will be higher with volatility and allows us to collect bigger premiums

  • This is one of my favorite long term strategies (see Wheel Strategy)